No. 10-56884
IN THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
___________________________________________
VIEN-PHUONG THI HO,
Plaintiff-Appellant,
v.
RECONTRUST COMPANY, N.A., ET AL.,
Defendants-Appellees.
___________________________________________
On Appeal from the
United States District Court for the
Central District of California
Hon. George H. Wu
Case No. 2:10-cv-00741
_______________________________________________________
BRIEF OF AMICUS CURIAE
CONSUMER FINANCIAL PROTECTION BUREAU
IN SUPPORT OF APPELLANT AND REVERSAL
_______________________________________________________
Meredith Fuchs
General Counsel
To-Quyen Truong
Deputy General Counsel
John R. Coleman
Assistant General Counsel
Nandan M. Joshi
Thomas M. McCray-Worrall
Attorneys
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, D.C. 20552
(202) 435-9683 (telephone)
(202) 435-7024 (facsimile)
thomas.mccray-worrall@cfpb.gov
Counsel for Amicus Curiae
Consumer Financial Protection Bureau

QUESTIONS PRESENTED
Pursuant to this Court’s Order of June 8, 2015, this brief addresses “whether,
in this case, defendant ReconTrust is a ‘debt collector’ for the purposes of the Fair
Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., or its implementing
regulations” and “[i]n general . . . whether a trustee who forecloses on a California
deed of trust in a non-judicial action qualifies as a ‘debt collector’ because he has
‘attempt[ed] to collect, directly or indirectly, debts owed or asserted to be owed or
due to another.’” See ECF No. 67 at 1–2 (quoting 15 U.S.C. § 1692a(6)) (second
bracketed text in original).

[…]

Consumerist-

Imagine you wake up one day to find out that you suddenly owe nearly $100,000 on a house you’ve never owned, in a city where you’ve never resided. Should be easy enough to sort that out, right? Tell that to the Florida man who has spent the better part of two decades trying to convince creditors he didn’t buy property in Philadelphia when he was 12 years old.

The man’s saga, according to the Philadelphia Inquirer, goes back to 1998, when he learned of a $98,293 judgement against him from a bank. The money was related to a property in Northeast Philadelphia that had gone into foreclosure.

The building had apparently been purchased by someone with a similar name, but in 1972, when the alleged debtor wasn’t even a teenager, let alone trying to invest in real estate.

[CONSUMERIST]

WASHINGTON, DC – In a letter sent to six financial regulators today, United States Senator Elizabeth Warren (D-Mass.) asked about compliance and enforcement issues related to a new communications tool created by Symphony Communications LLC for use by financial institutions. The senator raised concerns about Symphony’s description of the new system, “which appear(s) to put companies on notice – with a wink and a nod – that they can use Symphony to reduce compliance and enforcement concerns,” and asked the federal regulators for information about the impact of this system on their ability to enforce the law.

In her letter, which was sent to heads of the Federal Deposit Insurance Corporation (FDIC), Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC), Department of Justice (DOJ), Consumer Financial Protection Bureau (CFPB), and Financial Industry Regulatory Authority (FINRA), Senator Warren noted that Symphony has described its system as a way to “prevent government spying,” with “no backdoors,” suggesting that it could be used to to reduce compliance and enforcement concerns.

Senator Warren explained, “The communications that Symphony will allow companies to hide from ‘government spying’ – such as text messages and chat room transcripts – have proven to be ‘key evidence’ in many previous regulatory and compliance cases that have uncovered criminal action by Wall Street…If banks are now making this information more difficult for regulators to obtain and interpret, it could prevent these regulators from identifying and preventing future illegal behavior.”

Read the full text of the letters here:

• CFPB
• CFTC
• DOJ
• FDIC
• FINRA
• SEC

###

The probes into bank fraud leading up to the financial industry’s crash have been quietly closed. Is this justice?

The Atlantic-

On May 27, in her first major prosecutorial act as the new U.S. attorney general, Loretta Lynch unsealed a 47-count indictment against nine FIFA officials and another five corporate executives. She was passionate about their wrongdoing. “The indictment alleges corruption that is rampant, systemic, and deep-rooted both abroad and here in the United States,” she said. “Today’s action makes clear that this Department of Justice intends to end any such corrupt practices, to root out misconduct, and to bring wrongdoers to justice.”

Lost in the hoopla surrounding the event was a depressing fact. Lynch and her predecessor, Eric Holder, appear to have turned the page on a more relevant vein of wrongdoing: the profligate and dishonest behavior of Wall Street bankers, traders, and executives in the years leading up to the 2008 financial crisis. How we arrived at a place where Wall Street misdeeds go virtually unpunished while soccer executives in Switzerland get arrested is murky at best. But the legal window for punishing Wall Street bankers for fraudulent actions that contributed to the 2008 crash has just about closed. It seems an apt time to ask: In the biggest picture, what justice has been achieved?

 [THE ATLANTIC]

Michael W. Smith, of Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Orlando, for Appellee.

LAMBERT, J.

Victoria Schmidt and Michael Messina (“Borrowers”) appeal a final judgment of foreclosure entered in favor of Deutsche Bank National Trust Company, as Trustee for the Certificateholders of Soundview Home Loan Trust 2006-OPT4, Asset-Backed Certificates, Series 2006-OPT4, (“Bank”) after a nonjury trial. Concluding that Bank failed to establish that it had standing at the time it filed its foreclosure complaint, we reverse and remand for further proceedings.

Bank filed its complaint against Borrowers on January 8, 2010. It sought to foreclose on the mortgage and to reestablish a lost note. Bank attached to its complaint a copy of the mortgage and a copy of the note. The lender was Option One Mortgage Corporation. The copy of the note attached to the complaint contained no endorsements. Bank alleged in its complaint that it was not in possession of the note and could not reasonably obtain possession of the note because it was lost, stolen, or destroyed.

Borrowers moved to dismiss the complaint, asserting among other things that Bank lacked standing to bring suit on the note and mortgage. On April 5, 2010, prior to a ruling on Borrowers’ motion to dismiss, Bank filed with the clerk of court an assignment of mortgage dated January 26, 2010, which provided in pertinent part that Sand Canyon Corporation f/k/a Option One Mortgage Corporation assigned and transferred to Bank the mortgage “together with the note of obligation described in said mortgage.” There was no language in the assignment of mortgage indicating that the assignment had retroactive effect prior to January 26, 2010. Two days later, on April 7, 2010, Bank filed with the clerk of the court the original note, the original mortgage, and an original allonge.^[1] The allonge is dated March 8, 2006, which is the same date as the promissory note. It was signed by an assistant secretary with Option One Mortgage Corporation and contained a blank endorsement, making the note “payable to bearer and [negotiable] by transfer of possession alone until specially indorsed.” § 673.2051(2), Fla. Stat. (2006).

Two days after filing these original documents, Bank filed a notice dropping its cause of action to reestablish the lost note. Borrowers later withdrew their previously filed motion to dismiss and filed an answer, raising several affirmative defenses, including that Bank lacked standing to bring the suit.

Bank called one witness at trial. The witness, Harrison Whittaker, worked as a loan analyst for Ocwen Loan Servicing, the most recent servicer for Borrowers’ loan. He explained that he reviews our “business records in preparation for testimony, depositions in foreclosure matters.” At the commencement of the bench trial, the court, without objection, took judicial notice of the fact that the original note and mortgage were filed with the clerk of court on April 7, 2010. The court then inquired of Borrowers’ counsel what defense he planned to argue, at which point counsel reiterated that the “[l]ack of standing at the conception of the case is probably the biggest one.” Pertinent to the issue of standing, the following exchange occurred:

THE COURT: Are you familiar with the books and records of the plaintiff as they relate to this particular foreclosure case?

THE WITNESS: I am.

. . . .

THE COURT: Okay. Now, have you examined the note in the case?

THE WITNESS: Yes, I have.

THE COURT: Was it held by the bank at the time the suit was filed?

THE WITNESS: Yes, it was.

THE COURT: And how do you know that?

THE WITNESS: The allonge that’s attached to the original note is dated. I believe the exact date is in March of 2006, I believe. I’m not quite —

THE COURT: Was it signed in blank?

THE WITNESS: Yes.

THE COURT: And was it physically in the possession of the servicer during that time?

THE WITNESS: I don’t — I don’t have records showing the exact — in their possession physically. I do know, looking through the allonge, that it was dated prior to the bringing up of this action.

At this point of the trial, no business records had been admitted into evidence. Essentially, Bank’s witness testified in a conclusory fashion that, based on his review of Bank’s records, Bank held the note at the time suit was filed because the allonge is dated March 8, 2006.

On cross-examination, Borrowers’ counsel, in light of the initial allegations in the complaint that Bank did not have possession of the note when suit was filed, attempted to explore how the witness actually knew that Bank held possession of the note at the time of suit since it was not based on the “documentary facts.” At this point, and before cross-examination had concluded, the court stated:

THE COURT: It’s based on his knowledge. He says he’s familiar with the books and records and he satisfied me that it was held by the bank. Now, maybe you’ve got some evidence that would move me off that position, but as it stands now —

At the conclusion of the witness’s testimony, Bank’s counsel advised the court that she had no further testimony to present. Bank then admitted into evidence the original note and mortgage, the loan payment history,^[2] an acceleration letter, and documents entitled “Mortgage Loan Purchase Agreement” and a “Pooling and Servicing Agreement” (“PSA”). Counsel then briefly stated to the court that Bank had established by a preponderance of the evidence “the existence of an agreement, a default and acceleration of the debt to maturity in the amounts due and owing.” Borrowers moved for an involuntary dismissal, arguing that Bank failed to prove standing. The trial court, without specifically ruling on the motion, found that Bank held the note at the time suit was filed and that Borrowers were in default. Thereafter, the court entered the final judgment presented by Bank’s counsel at the conclusion of the trial.

“A crucial element in any mortgage foreclosure proceeding is that the party seeking foreclosure must demonstrate that it has standing to foreclose.” McLean v. JP Morgan Chase Bank Nat’l Ass’n, 79 So. 3d 170, 173 (Fla. 4th DCA 2012) (citing Lizio v. McCullom, 36 So. 3d 927, 929 (Fla. 4th DCA 2010); Verizzo v. Bank of N.Y., 28 So. 3d 976, 978 (Fla. 2d DCA 2010); Philogene v. ABN Amro Mortg. Grp., Inc., 948 So. 2d 45, 46 (Fla. 4th DCA 2006)). The burden is on the party seeking foreclosure to prove by substantial competent evidence that it has standing. See Boyd v. Wells Fargo Bank, N.A., 143 So. 3d 1128, 1129 (Fla. 4th DCA 2014). Here, Bank asserted it had standing as the holder of the note. To be a “holder” entitled to enforce under the facts of this case, Bank was required to show physical possession of the original note and the allonge endorsed in blank. See § 671.201(21), Fla. Stat.; see also Eagles Master Ass’n Inc. v. Bank of Am., N.A., 40 Fla. L. Weekly D1510, at *2 (Fla. 2d DCA June 26, 2015) (citing Kiefert v. Nationstar Mortg., LLC, 153 So. 3d 351, 353 (Fla. 1st DCA 2014)). “The endorsement must have occurred before the filing of the complaint because it is axiomatic that standing must be shown as of the filing of the complaint.” See Eagles Master, 40 Fla. L. Weekly D1510, at *2 (citing Focht v. Wells Fargo Bank., N.A., 124 So. 3d 308, 310 (Fla. 2d DCA 2013)). We apply a de novo standard of review in determining whether a party has standing to bring an action. Boyd, 143 So. 3d at 1129.

We find that Bank did not present substantial competent evidence that it was the holder of the note and allonge at the time it filed the foreclosure complaint. Essentially, Bank’s argument at trial was that the allonge was dated March 8, 2006, which predates the filing of the law suit and, therefore, it must have had possession of the note before suit was filed. However, in this case, the original complaint included a count to reestablish a lost note specifically alleging that Bank did not physically possess the note, and the allonge endorsed in blank was not attached to the copy of the note that was attached to the complaint. Additionally, when asked by the court, Bank’s only witness stated that he had no personal knowledge as to when Bank came into possession of the note and allonge; he specifically testified that he did not have records, which were his sole basis of knowledge, showing when Bank physically came into possession of the note. This testimony is insufficient to establish Bank was the holder of the note when suit was filed and is especially so since Bank previously filed an assignment of mortgage that stated that the original lender had assigned the mortgage and the note to Bank on January 26, 2010, which is 18 days after suit was filed. It therefore became incumbent upon Bank to present competent evidence at trial to explain how it became a holder of the note prior to suit being filed, which it did not do.

On appeal, Bank argues for the first time that sufficient competent evidence established that it was the holder of the note prior to suit being filed for two reasons: (1) pursuant to the Mortgage Loan Purchase Agreement, the note was sold by the original lender, Option One Mortgage Corporation, to Soundview Home Loan Trust 2006-OPT4, with Bank acting as Trustee; and (2) pursuant to the terms of a separate PSA, dated May 1, 2006, the properly endorsed original note was required to be delivered to Bank concurrently with the execution of the PSA.^[3]

The PSA named Financial Assets Securities Corporation as the depositor, Option One Mortgage Corporation as the servicer, and Bank as Trustee. The Mortgage Loan Purchase Agreement listed Financial Assets Securities Corporation as the purchaser and Option One Owner Trust as seller. At trial, there was no competent testimony from Bank’s witness that the note was transferred into the PSA prior to the foreclosure action being filed and there was no evidence that Financial Assets Securities Corporation, as depositor under the PSA, had the intent to transfer any interest in the note to Bank, as trustee. See Balch v. LaSalle Bank, N.A., 40 Fla. L. Weekly D1408, at *1 (Fla. 4th DCA June 17, 2015). Furthermore, there was insufficient testimony and evidence that the note and mortgage in this case were actually included as part of the Mortgage Loan Purchase Agreement.

Because Bank failed to establish standing at the time of filing of the complaint, we reverse and remand for entry of a final order of involuntary dismissal of the action. See May v. PHH Mortg. Corp., 150 So. 3d 247, 249 (Fla. 2d DCA 2014) (reversing final judgment and finding that bank’s failure to prove prima facie case warranted dismissal, as “none of the evidence adduced at trial demonstrated when, if at all, the bank came into possession of the note”).

REVERSED and REMANDED with directions.

LAWSON, C.J., and SAWAYA, J. concur.

NOT FINAL UNTIL TIME EXPIRES TO FILE MOTION FOR REHEARING AND DISPOSITION THEREOF IF FILED

[1] An allonge is “a slip of paper sometimes attached to a negotiable instrument for the purpose of receiving further indorsements when the original paper is filled with indorsements.” Allonge, Black’s Law Dictionary (10th ed. 2014).

[2] Although there was an insufficient foundation to admit the loan transaction history records into evidence, see Bank of New York v. Calloway, 157 So. 3d 1064, 1072-73 (Fla. 4th DCA 2015), no objections were raised below and the issue has not been raised on appeal.

[3] At trial, Bank did not rely on either the Mortgage Loan Purchase Agreement or the Pooling and Servicing Agreement to establish standing, as evidenced by the following exchange:

[BANK’S COUNSEL]: Okay. Your Honor, for the record, I’d like to admit the original note and mortgage into evidence and I’d also move to admit payment history and the acceleration letter.

I was not planning on admitting the mortgage loan purchase agreement or the pooling and servicing agreement into evidence.

THE COURT: Go ahead and put them in there. It doesn’t make any difference. They’re not relevant, but if you want to put them in there just to be on the safe side.

Reuters-

A federal judge in Manhattan has handed the U.S. Securities and Exchange Commission a big defeat over its use of in-house judges, halting its case against a former Standard & Poor’s executive because the way SEC judges who handle such cases are appointed is likely unconstitutional.

U.S. District Judge Richard Berman issued a preliminary injunction on Wednesday stopping the regulator’s civil administrative proceeding against Barbara Duka, the former S&P executive, over her role in an alleged fraud involving mortgage debt ratings.

Berman is at least the second federal judge to halt in-house SEC cases because of concern that the regulator’s practice of letting staff rather than commissioners appoint its five administrative law judges may be unconstitutional.

[REUTERS]

Pretty sure every home loan trust had these exact issues.

For Immediate Release:
August 11, 2015
Contact:
Hannah Harrill
919-508-7821

NMS Monitor releases update on Ocwen’s Compliance and Consumer Relief Distribution and SunTrust’s Consumer Relief

Raleigh, N.C. – Joseph A. Smith, Jr., Monitor of the National Mortgage Settlement (NMS or Settlement), today filed his final report with the United States District Court for the District of Columbia on his investigation into the independence of Ocwen’s internal review group (IRG) and Ocwen’s compliance with the Settlement for the first and second quarters of 2014. The report includes the results of the independent retesting of at-risk metrics and the corrective action steps Ocwen took and continues to implement to address these issues. Smith also filed reports on consumer relief crediting for Ocwen and SunTrust.

“I now have a measure of assurance that issues with Ocwen’s IRG’s independence, competency and capacity have been sufficiently addressed. Before reaching that conclusion, I ordered independent retesting of at-risk metrics, reviewed changes made to the personnel and governance of the IRG, and reviewed and approved corrective action plans to address failed metrics and a global corrective action plan that intends to fix letter-dating issues,” Smith said.

“I will continue to closely monitor Ocwen’s compliance with the Settlement agreement and plan to report on Ocwen’s compliance for the third and fourth quarter of 2014 in the coming weeks.”
Retesting Results

Under the Monitor’s direction, McGladrey LLP reviewed the metrics deemed to be at-risk for the first and second quarters of 2014. McGladrey’s results were substantially consistent with those of Ocwen’s IRG. After thorough retesting, McGladrey ultimately determined that Ocwen failed one metric for the first quarter of 2014. Ocwen’s IRG independently found another failure. Ocwen has since submitted a CAP for each failed metric, which the Monitor has approved.

Letter-Dating Issue
Smith previously reported on letter-dating issues at Ocwen associated with sending incorrect dates on certain correspondence to borrowers. Under the Monitor’s direction and approval, Ocwen has created a Global CAP to remedy these issues. An overview of the Global CAP is included in his report. Smith anticipates that the Global CAP will be implemented and that testing will resume in the third quarter of 2015.

Consumer Relief
The Monitor also released his first report [hyperlink] on Ocwen’s $2 billion consumer relief obligations under the Settlement. As of Dec. 31, 2014, Smith has confirmed $881,219,183 in credited relief to 8,861 borrowers through first lien mortgage modifications.

“After my thorough reviews, I can confirm Ocwen’s progress of over $800 million toward its consumer relief obligation,” said Smith. “I will continue to report to the public on Ocwen’s consumer relief activities and my reviews as information is available.”

In addition, the Monitor also filed a report on SunTrust’s consumer relief progress. Smith credited SunTrust, which is required to provide $500 million in consumer relief by Sept. 30, 2017, with distributing $7.8 million in consumer relief. This initial filing is based on SunTrust’s initial submission of 100 loans through Dec. 31, 2014.
“SunTrust submitted to me an initial sample of 100 loans to ensure that its testing protocols had been properly designed and implemented,” said Smith. “Based on this early review of relief distributed through year-end last year, I am encouraged by SunTrust’s progress. I will continue to closely review and oversee its consumer relief distribution until the $500 million requirement has been met, and I will make information public as soon as it is available.”

About the Office of Mortgage Oversight
More information about the National Mortgage Settlement is available at www.nationalmortgagesettlement.com. Further information about Joseph Smith and the Office of Mortgage Settlement Oversight is available at www.mortgageoversight.com

###

WSJ-

Wesley Edens still rues his decision not to bet against subprime mortgages before the financial crisis. That left Fortress Investment Group LLC, the private-equity and hedge-fund firm where he is co-founder and co-chairman, exposed to big losses that sank its stock price below $1.

On Wall Street, the best way to get over a losing trade is to bounce back with a winner. Mr. Edens is enjoying a surprising whopper: subprime loans.

A resurgence in loans to Americans with scuffed or limited credit is giving Fortress one of the largest financial windfalls in the history of the private-equity industry.

[WALL STREET JOURNAL]

Paul S. Calem

Federal Reserve Banks – Federal Reserve Bank of Philadelphia

Julapa Jagtiani

Federal Reserve Banks – Federal Reserve Bank of Philadelphia

William W. Lang

Federal Reserve Bank of Philadelphia

July 2, 2015

FRB of Philadelphia Working Paper No. 15-24
Abstract:

H/T Alina Virani

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA

IRWIN J. LIPTON, Derivatively on Behalf of
WORLD ACCEPTANCE CORPORATION,
Plaintiff,

v.

A. ALEXANDER MCLEAN, III, JOHN L.
CALMES, JR., KELLY M. MALSON, MARK C.
ROLAND, JAMES R. GILREATH, CHARLES D.
WAY, KEN R. BRAMLETT, JR., SCOTT J.
VASSALLUZZO, and DARRELL E. WHITAKER,
Defendants,

-and-

WORLD ACCEPTANCE CORPORATION, a
South Carolina corporation,
Nominal Defendant.

JURY TRIAL DEMANDED

VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT

I. NATURE AND SUMMARY OF THE ACTION

1. World Acceptance is a small-loan consumer finance business that specializes in
sub- “subprime” lending. The Company offers short- and medium-term installment loans
(i.e., ranging from four to 42 months), marketing those loans and related credit insurance and
ancillary products and services in more than 1,200 branch offices in 14 states as well as
Mexico. World Acceptance targets its products to customers with credit scores as low as 400
— well below the floor for “subprime” credit scores. In other words, the Company preys on
consumers who have no other place to turn for financial help. While World Acceptance
provides these consumers with financing, it comes at a steep price. The Company’s loans
typically carry exorbitant interest rates which are set near or at the maximum allowable limit
under applicable law.

2. During the Relevant Period, World Acceptance routinely boosted its effective
interest rates through two devious, but extremely profitable practices. First, the Company’s
customers were bilked into purchasing worthless credit insurance products that only benefitted
the Company, but were paid for by the borrowers.

3. Second, the Company’s borrowers were locked into an endless cycle of debt by
being constantly manipulated into refinancing their loans, even before they had paid back a
significant portion of their outstanding balance. Such renewals comprised as much as 75% of
the Company’s loan portfolio during the Relevant Period. Through this practice, the
Individual Defendants were able to create the perception of significant loan growth, which as
the Individual Defendants stated, was their “number-one priority.” However, as the Individual
Defendants later revealed, they were improperly accounting for many of those renewals in
violation of Generally Accepted Accounting Principles (“GAAP”). Indeed, while World
Acceptance was accounting for small-dollar loan renewals as new loans, such renewals should
actually have been accounted for as “modifications.” Through this accounting machination,
the Individual Defendants improperly inflated their loan growth and loan volume to the
market, which closely followed these key metrics in assessing World Acceptance stock.

4. The truth about the Individual Defendants’ illicit lending practices and
improper accounting began to emerge on July 25, 2013. On that date, the Individual
Defendants caused the Company to hold a conference call with analysts to discuss the
Company’s first quarter 2014 financial results and recently filed amended fiscal 2013 Form
10-K, in which they admitted that there had been a “material weakness” in World
Acceptance’s accounting treatment of small-dollar loan renewals. The Individual Defendants
explained that such small-dollar renewals, which comprise between 15% and 25% of the
Company’s entire loan renewal portfolio, were improperly being recorded as “renewals”
instead of “modifications,” in violation of GAAP, and that remedial actions would be required.

5. However, the Individual Defendants downplayed numerous analyst inquiries,
falsely reassuring investors that the “material weakness” would not “have a significant impact
on the overall operations of the company” moving forward. As a result of its July 25, 2013
revelations, World Acceptance’s share price dipped 4.3%, causing millions in investor losses
and in market capitalization loss to World Acceptance. This stock drop would have been even
greater, however, but for the Individual Defendants’ misleading assurances.

6. The Individual Defendants could only hide the truth regarding their illicit
practices for so long. Indeed, on March 13, 2014, additional information emerged when the
Individual Defendants caused the Company to reveal to the market that World Acceptance was
the subject of a federal investigation by the Consumer Financial Protection Bureau (“CFPB” or
the “Bureau”) regarding potential “unlawful acts or practices in connection with the marketing,
offering, or extension of credit in violation of” federal consumer financial laws such as the
Consumer Financial Protection Act and the Truth in Lending Act. As a result of this revelation
regarding the U.S. government’s investigation into the Company’s marketing and lending
practices, World Acceptance’s stock price sank almost 20%, from a close of $97.32 on March
12, 2014 to a close of $78.25 on March 13, 2014, erasing millions more in market
capitalization. However, as was the case previously, the Individual Defendants continued to
downplay this additional negative news to the market thereby buoying World Acceptance’s
stock price with false assurances as to the propriety of its marketing and lending practices.

7. Then, on April 29, 2014, the truth regarding World Acceptance’s illicit lending
practices and accounting manipulation was finally and fully revealed as the Individual
Defendants caused the Company to announce first quarter 2015 earnings. Indeed, on that day the
Individual Defendants revealed that they had changed their corporate policy to no longer
“encourage” small-dollar renewals. As a result of this correction, World Acceptance posted its
lowest quarterly loan growth in at least nine years. Through this disclosure, the Individual
Defendants implicitly acknowledged that through their prior practices, they had manipulated
consumers who had barely repaid their loan balances into renewals to artificially boost World
Acceptance’s loan growth and volume.

8. Moreover, the Individual Defendants’ announcement revealed that, contrary to
their initial assurances, the previously disclosed “material weakness” had, in fact, materially
impacted the Company’s operations in that, during the Relevant Period, reported loan volume
and loan growth figures had been artificially inflated as a result of World Acceptance’s faulty
accounting methods for small-dollar renewals.

9. The market’s reaction to this revelation was swift and severe as investors sent the
Company’s stock price spiraling downward approximately another 10%, falling from a close of
$80.50 on April 28, 2014 to a close of $72.60 on April 30, 2014, resulting in millions of dollars
in additional market capitalization loss to the Company. All told, World Acceptance saw its
market capitalization shrink by more than $250 million during the Relevant Period between
January 30, 2013 and April 29, 2014. The Company’s stock price has continued its downward
trajectory, closing at just $59.77 per share on July 14, 2015.

10. Of course, not everyone was harmed by the Individual Defendants’ actions.
Specifically, during the Relevant Period, in just a 12 month period of time between February 1,
2013 and February 5, 2014, certain of the Individual Defendants sold 326,953 World Acceptance
shares at inflated prices reaping almost $29 million in proceeds. These sales were made at the
same time the Individual Defendants were causing the Company to repurchase millions of shares
of its own stock at inflated prices. Specifically, between February 2013 and February 2014 —
the same time period many of the Individual Defendants were unloading shares and reaping
millions in proceeds, the Individual Defendants caused the Company to purchase more than
2,000,000 shares of its own stock for a total of $188,518,361 at inflated prices ranging from a
weighted average of $77.53 per share to as high as $102.89 per share.

11. World Acceptance’s Board of Directors (the “Board”) has not commenced, and
will not commence, litigation against the Individual Defendants named in this Complaint, let
alone vigorously prosecute such claims, because, among other things, a majority of the members
of the Board are directly interested in the personal financial benefits challenged herein that were
not shared with World Acceptance shareholders, and/or face a substantial likelihood of liability
to World Acceptance for breaching their fiduciary duties of loyalty and good faith by authorizing
or failing to correct the false and misleading statements alleged herein, and/or lack
independence. Accordingly, a pre-suit demand upon World Acceptance’s Board was and is a
useless and futile act. Thus, Plaintiff rightfully brings this action to vindicate World
Acceptance’s rights against its wayward fiduciaries and hold them responsible for the damages
they have caused to World Acceptance.

[…]

See the ruling here:

Jacksonville-

A Jacksonville federal judge has issued a sharp critique of Bank of America in a case involving a Jacksonville couple where the bank mishandled court filings and began a years-long process of trying to collect a non-existent debt and falsely filing for foreclosure.

Bank of America ruined their retirement, Deborah and Ronald Goodin testified, and it may have ruined their marriage, too.

The Goodins, like many American families, made a bad business decision just as the Great Recession began. By 2009, they filed for bankruptcy. They never missed a payment into a bankruptcy trust that was supposed to take care of their mortgage.

[JACKSONVILLE]

Jack Wright of MSFRAUD.org has passed away. Jack was a true hero who helped many throughout the years while battling the banks himself.

He will be missed.

National Mortgage News-

Banks are still haunted by bad underwriting of mortgage loans from the last housing boom, and the nightmare could endure for months to come.

M&T Bank’s disclosure Thursday that it is in settlement talks with the Justice Department for not complying with underwriting guidelines on Federal Housing Administration loans has renewed fears that more lenders will be the targets of probes and possible litigation.

The $97 billion-asset bank M&T, in Buffalo, N.Y., joins a growing list of large and regional banks currently in litigation or settlement discussions with the government for allegations of shoddy underwriting.

[NATIONAL MORTGAGE NEWS]

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT

SHERMAN BALCH and ANNMARIE BALCH,
Appellants,

v.
LASALLE BANK N.A., as Trustee for Washington Mutual Mortgage Pass-through Certificates WMART Series 2006-5 Trust,
Appellee.

No. 4D14-2057
[August 5, 2015]

Appeal from the Circuit Court for the Nineteenth Judicial Circuit, Martin County; James W. McCann, Judge; L.T. Case No. 2008 CA-726.

Sherman Balch and AnnMarie Balch, Palm City, pro se.

Jeffrey T. Kuntz and Thomas H. Loffredo of GrayRobinson, P.A., Fort Lauderdale, and Maureen A. Vitucci and John M. Brennan, Jr., of GrayRobinson, P.A., Tallahassee, for appellee.

ON MOTION FOR REHEARING

STEVENSON, J.

We deny Appellee’s motion for rehearing, but withdraw our prior opinion and substitute the following in its place.
Sherman and AnnMarie Balch (collectively, “Homeowners”) appeal a final judgment of foreclosure entered in favor of LaSalle Bank N.A. (“LaSalle Bank”). We find the trial court erred in finding LaSalle Bank had standing at the time it initiated the foreclosure complaint, and accordingly reverse and remand for further proceedings.
Facts

LaSalle Bank filed its complaint in March of 2008. It sought to foreclose on the mortgage and to re-establish a lost note. LaSalle Bank attached to this complaint a copy of the mortgage and a copy of the note. The note listed American Home Mortgage as the lender and contained no indorsements. Close to three months later, LaSalle Bank filed the original note. The original note contained an undated special indorsement from American Home Mortgage to Washington Mutual Bank.

LaSalle Bank called one witness at trial. The witness worked for JP Morgan Chase Bank, the servicer for Homeowners’ loan. He explained that Homeowners’ loan was part of a pooling and servicing agreement (“PSA”) that came into existence in June of 2006. The PSA listed WaMu Acceptance Corporation as the depositor, Washington Mutual Bank as the servicer, and LaSalle Bank National Association as the trustee for the trust. Relying on servicing records and the closing date for the trust, the witness testified that Homeowners’ loan was transferred into the trust on or around June 29, 2006.

As it pertains to the note, the witness never specified when the special indorsement was placed onto the original note. LaSalle Bank also introduced into evidence a copy of an assignment, dated April 3, 2008, which assigned MERS’ interest in the mortgage and note to LaSalle Bank. MERS was not a party to the PSA.

Homeowners moved for an involuntary dismissal, arguing LaSalle failed to prove standing. The trial court denied the motion and entered final judgment of foreclosure in favor of LaSalle Bank.

Analysis

“We review the sufficiency of the evidence to prove standing to bring a foreclosure action de novo.” Lloyd v. Bank of New York Mellon, 160 So. 3d 513, 514 (Fla. 4th DCA 2015). Here, LaSalle Bank did not provide sufficient evidence that it had standing at the time it filed the foreclosure complaint.

First, there was no evidence indicating when the special indorsement in favor of Washington Mutual Bank was placed onto the note. See McLean v. JP Morgan Chase Bank Nat’l Ass’n, 79 So. 3d 170, 174 (Fla. 4th DCA 2012) (“Where the plaintiff contends that its standing to foreclose derives from an endorsement of the note, the plaintiff must show that the endorsement occurred prior to the inception of the lawsuit.”). Secondly, the assignment is insufficient to establish standing, as the assignment was executed after the complaint was filed. See Rigby v. Wells Fargo Bank, N.A., 84 So. 3d 1195, 1195–96 (Fla. 4th DCA 2012) (reversing entry of final summary judgment because the bank failed to establish it had standing to foreclose when the evidence showed the assignment was dated one day after the complaint was filed). Finally, evidence that the note was transferred into the trust prior to the foreclosure action is insufficient by itself to confer standing because there was no evidence that the indorsee had the intent to transfer any interest to the trustee. See Jelic v. LaSalle Bank, Nat’l Ass’n, 160 So. 3d 127, 130 (Fla. 4th DCA 2015) (reversing a final judgment of foreclosure, in part because there was no evidence that the party transferring the note into a trust had any intent to transfer an interest to the trustee).

Based on the foregoing, we reverse and remand for entry of an order of involuntary dismissal of the action. See Sosa v. U.S. Bank Nat’l Ass’n, 153 So. 3d 950, 952 (Fla. 4th DCA 2014) (reversing and remanding for entry of an order of involuntary dismissal when the bank failed to provide sufficient evidence of its standing).

Reversed and remanded.

GERBER and LEVINE, JJ., concur.
* * *

Bankruptcy News-

A law firm that at one time handled 40% of home foreclosures in New Jersey has filed for bankruptcy, blaming its mortgage-lender clients and tighter rules for its troubles.

Zucker, Goldberg & Ackerman LLC , or ZGA, sought chapter 11 protection Monday, and is in the process of handing off 30,000 active foreclosure and insolvency cases in preparation for liquidation, court papers say. If a turnaround opportunity arises, the firm will seize it. For now, however, the firm is throwing in the towel….

 [BANKRUPTCY NEWS]

DBR-

Bankruptcy judges are sending a strong message to homeowners: They will face penalties if they surrender their property to get bankruptcy protection and keep fighting in state court to save the same homes from foreclosure.

Some U.S. bankruptcy judges, including Chief Judge Paul Hyman Jr. in the Southern District of Florida and Judge Michael Williamson in the Middle District of Florida, are issuing precedent-setting rulings they say will give debtors a chance at a clean slate—not a leg up—on creditors in other courts.

“Surrender must mean something,” Williamson wrote in a May 13 consolidated opinion of two bankruptcy cases, In re Metzler and In re Patel, now at the center of a heated debate over a term not defined in the bankruptcy statute.

To judges like Hyman and Williamson, surrender means relinquishing property to “make it available to the secured creditor by refraining from taking any overt act that impedes” foreclosure.

Read more: http://www.dailybusinessreview.com/id=1202733488406/Bankruptcy-Judges-Clamp-Down-on-Homeowners-in-Foreclosure#ixzz3i3oUQ5O6

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

H/T JD Supra

Celia Elmira Smith, Appellant,
v.
Reverse Mortgage Solutions, Inc., etc., Appellee.

Marinosci Law Group, P.C., and Bart Heffernan, (Ft. Lauderdale), for appellee.

Before SHEPHERD, ROTHENBERG and SCALES, JJ.

SCALES, J.

Celia Smith (“Mrs. Smith”), who was the defendant below, appeals from a Final Judgment of Foreclosure arising out of a home equity conversion mortgage signed and executed in May 2008, by Mrs. Smith and her now-deceased husband, Kenneth Smith (“Mr. Smith”). Because Reverse Mortgage Solutions, Inc., the plaintiff below and appellee here, failed to establish the occurrence of a condition precedent to its right to foreclose, we reverse.

I. FACTS

On May 8, 2008, while Mr. and Mrs. Smith were married, Mr. Smith signed and executed an adjustable rate note secured by a home equity conversion mortgage, or what is commonly referred to as a “reverse mortgage.” A reverse mortgage allows elderly homeowners to receive monthly payments from a lender based upon the homeowners’ equity in their principal residence. Instead of the more conventional mortgage arrangement—where the borrower receives a lump sum from a lender, and then repays the lender over time with monthly payments— generally, in a reverse mortgage arrangement, the lender makes monthly payments to the elderly homeowners, and the homeowners’ obligation to repay the lender ripens only upon the homeowners’ death or when the homeowners move from their home. See, e.g., Bennett v. Donovan, 703 F.3d 582, 584-85 (D.C. Cir. 2013).

The reverse mortgage at issue here encumbered the residential property where Mr. and Mrs. Smith lived together as their principal residence. Mrs. Smith executed the mortgage, but she did not sign the promissory note.^[1]

Following Mr. Smith’s death in December 2009, Reverse Mortgage Solutions filed a verified complaint for foreclosure of the reverse mortgage, alleging that Mr. Smith was the “sole borrower under the note and mortgage” and that his death triggered the acceleration clause under the mortgage agreement. No other ground for acceleration was alleged.

The verified complaint alleged that: (i) $229,475 was due under the note and mortgage, plus interest; (ii) all conditions precedent to the acceleration of the note, and to foreclose on the mortgage, had been fulfilled or had occurred; and (iii) Mrs. Smith owned the property. Mrs. Smith’s answer denied the complaint’s condition precedent allegations, and specifically pled: “This mortgage should not be accelerated as the Defendant [Mrs. Smith] is still alive and living in the real property as her homestead.”

Following a bench trial, the trial court entered a form final judgment of foreclosure in favor of Reverse Mortgage Solutions in the amount of $248,403.59, foreclosing on Mrs. Smith’s interest in the property and setting a September 2013 foreclosure sale date. The final judgment contains no specific findings of fact or other adjudications with regard to whether all conditions precedent had occurred.

Mrs. Smith appeals the trial court’s Final Judgment of Foreclosure, contending that acceleration of the mortgage is inappropriate under both the express provisions of the mortgage document and the federal statute governing the insurability of reverse mortgages by the U.S. Department of Housing and Urban Development (HUD).^[2] Essentially, Mrs. Smith argues that she is a co-borrower under the mortgage, which prohibits foreclosure until she either dies or no longer maintains the property as her principal residence.

We conclude that Mrs. Smith is a co-borrower as contemplated in the mortgage, and, therefore, a condition precedent to Reverse Mortgage Solutions’ right to foreclose (to wit, Mrs. Smith’s death) has not occurred. Thus, we remand for a new trial to allow the trial court to adjudicate specifically whether the other condition precedent to Reverse Mortgage Solutions’ right to foreclose has occurred, i.e., whether the encumbered real property was Mrs. Smith’s principal residence as of the date of the trial.

II. ANALYSIS

A. Issue Before the Court

The issue before this Court is whether the trial court erred in its implicit determination that all conditions precedent to Reverse Mortgage Solutions’ entitlement to foreclosure had occurred. Specifically, we must determine whether—as a matter of law—Mrs. Smith is a “Borrower” as that term is used in the mortgage. If Mrs. Smith is a “Borrower,” either her death or her ceasing to use the subject property as her principal residence is a condition precedent to Reverse Mortgage Solutions’ right to foreclose the mortgage.

B. Standard of Review

We first note that, consistent with the dictates of Applegate v. Barnett Bank of Tallahassee, 377 So. 2d 1150 (Fla. 1979), and its progeny, the burden is on Mrs. Smith as the appellant to demonstrate error by providing this Court with an adequate record of the proceedings below, and, without such a record, affirmance is normally required. When, as here, the issue presented involves a pure question of law (i.e., judicial construction of the reverse mortgage to determine whether Mrs. Smith is a “Borrower” as defined in the reverse mortgage), and the error of law appears on the face of the final judgment,^[3] the absence of a transcript does not prevent reversal. See BarrNunn, LLC v. Talmer Bank & Trust, 106 So. 3d 51, 52 (Fla. 2d DCA 2013) (“[T]he absence of a transcript does not preclude reversal where an error of law is apparent on the face of the judgment[.]”) (quoting Chirino v. Chirino, 710 So. 2d 696, 697 (Fla. 2d DCA 1998)).

Normally, in a case such as this, the issue before this Court would simply be whether the trial court’s conclusion (subsumed in the final judgment)—that all conditions precedent to the plaintiff’s entitlement to foreclosure occurred—is supported by competent substantial evidence. See Verneret v. Foreclosure Advisors, LLC, 45 So. 3d 889, 891 (Fla. 3d DCA 2010) (“Findings of fact by a trial judge in a nonjury proceeding will not be set aside on review unless totally unsupported by competent and substantial evidence.”). In this case, however, the trial court’s entry of the Final Judgment of Foreclosure hinged not on weighing any trial evidence, but, rather, upon an interpretation of the reverse mortgage. The trial court found that all conditions precedent had occurred based upon its legal conclusion that Mrs. Smith was not a “Borrower” under the mortgage.

A trial court’s construction of notes and mortgages involves pure questions of law, and therefore is subject to de novo review. Nagel v. Cronebaugh, 782 So. 2d 436, 439 (Fla. 5th DCA 2001) (determining that general contract principles governed the trial court’s interpretation of the promissory note; thus, the appropriate standard of review was de novo). We, therefore, review the trial court’s construction of the reverse mortgage de novo.

C. Condition Precedent to Foreclosure

It is axiomatic that in a mortgage foreclosure action a plaintiff must plead and prove the occurrence of all conditions precedent. See Konsulian v. Busey Bank, N.A., 61 So. 3d 1283, 1285 (Fla. 2d DCA 2011).

Consistent with the requisites of 12 U.S.C. § 1715z-20(j)^[4] governing reverse mortgages insured by HUD, the subject mortgage contains plain language expressly conditioning the lender’s acceleration and foreclosure rights on the death of any “Borrower” whose principal residence is the property encumbered by the mortgage. Because the parties stipulate that Mrs. Smith has not died, and because Mr. Smith’s death is the sole ground alleged for Reverse Mortgage Solutions’ acceleration and foreclosure, if Mrs. Smith is a “Borrower” under the mortgage, then a condition precedent to the lender’s right to foreclose has not occurred, thereby precluding the lender’s foreclosure action.

D. Analysis of Relevant Mortgage Language—Mrs. Smith’s Status as a “Borrower”

We begin our analysis of whether Mrs. Smith is a “Borrower” by looking at the language of the mortgage.^[5] The first paragraph of the mortgage begins by identifying Mr. Smith as “a married man” and the mortgagor, which it thereafter refers to as the “Borrower.”

The mortgage’s fourth paragraph contains the Borrower Covenant^[6], whereby “the Borrower” acknowledges and covenants to the mortgagee that: (i) the Borrower owns the property; (ii) the Borrower has the right to mortgage, grant, and convey the property; and (iii) the property is otherwise unencumbered. The Borrower Covenant also requires the Borrower to defend the title to the property.

The final portion of the mortgage plainly indicates that: (1) both Mr. and Mrs. Smith are the “Borrower” under the mortgage; (2) both Mr. and Mrs. Smith signed the mortgage as the “Borrower”; and (3) both Mr. and Mrs. Smith’s signatures were jointly verified by two witnesses and one notary jurat.

Specifically, immediately before the witnesses’ signatures, the mortgage states the following: “BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants contained in this Security Instrument and in any rider(s) executed by Borrower and recorded with it.” Below this statement, both Mr. Smith’s and Mrs. Smith signatures appear. Mrs. Smith’s signature was no accident as her name was pre-printed on the document below the line she was required to sign.

Paragraph 9 of the mortgage contains the condition precedent required in such reverse mortgages by virtue of 12 U.S.C. § 1715z-20(j); that provision specifically provides: “Lender may require immediate payment in full of all sums secured by this Security Instrument if: (i) A Borrower dies and the Property is not the principal residence of at least one surviving Borrower[.]” (emphasis added).

Thus, based on the plain and unambiguous language of the mortgage— which was executed by both Mr. and Mrs. Smith—(i) both Mr. and Mrs. Smith were treated as the “Borrower” under the mortgage, and (ii) each borrower is protected from the foreclosure of the mortgage until both borrowers die.

Hence, this Court’s determination that Mrs. Smith is a co-borrower—and, therefore, that her death is a condition precedent to Reverse Mortgage Solutions’ ability to foreclose—could end here.

E. Conclusion Consistent With Florida’s Homestead Provisions

However, our conclusion that Mrs. Smith is a “Borrower” under the mortgage is also supported by the reference to Mr. Smith as a “married man” in the mortgage’s opening paragraph, coupled with the provision of the Borrower Covenant whereby “the Borrower” expressly covenants that “the Borrower” has the right to mortgage, grant, and convey the property.

Florida’s Constitution requires Mrs. Smith’s signature on the mortgage to effectuate the lender’s security interest in their homestead property. Art. X, § 4(c), Fla. Const. (“The owner of homestead real estate, joined by the spouse if married, may alienate the homestead by mortgage. . . .”); see Pitts v. Pastore, 561 So. 2d 297, 301 (Fla. 2d DCA 1990) (holding that a mortgage is ineffectual as a lien until such time as either the spouse joins in the alienation or the property loses its homestead status). Additionally, since Mr. Smith was married to Mrs. Smith at the time the mortgage was executed, only a deed containing Mrs. Smith’s signature could validly convey her interest in the property. Id.

Therefore, only if Mrs. Smith is a “Borrower” would this portion of the Borrower Covenant be accurate; Mr. Smith, acting alone, did not “have the right” to either encumber or convey both his and Mrs. Smith’s interest in the couple’s homestead property.^[7]

Plainly, Reverse Mortgage Solutions intended for the Borrower Covenant to confirm the mortgage’s validity and enforceability by having “the Borrower” warrant its capacity and ability to encumber and convey the property. Under Florida’s constitutional homestead provisions, this goal is achieved only if Mrs. Smith is a “Borrower.”

F. Application of Federal Reverse Mortgage Law

Even more persuasive to our determination is the application of relevant provisions of federal law related to reverse mortgages.^[8]

At oral argument, the parties conceded that the subject mortgage was, indeed, a “home equity conversion mortgage” issued by Reverse Mortgage Solutions, and insured by HUD, pursuant to 12 U.S.C. § 1715z-20.^[9] 12 U.S.C. § 1715z-20(j) is titled “[s]afeguard to prevent displacement of homeowner” and provides, in relevant part:

The Secretary may not insure a home equity conversion mortgage under this section unless such mortgage provides that the homeowner’s obligation to satisfy the loan obligation is deferred until the homeowner’s death, the sale of the home, or the occurrence of other events specified in regulations of the Secretary.

(emphasis added). This provision goes on to expressly define the term “homeowner” as including the spouse of the homeowner: “For purposes of this subsection, the term `homeowner’ includes the spouse of a homeowner.” Id.

While the plain language of the statute imposes an obligation only on the Secretary of HUD with regard to provisions that must be contained in reverse mortgages insured by HUD, it is undisputed that the subject mortgage is, indeed, a reverse mortgage insured by HUD. We are compelled to construe a contract consistent with specific statutes that regulate and govern the contract. See Westside EKG Assocs. v. Found. Health, 932 So. 2d 214, 216 (Fla. 4th DCA 2005); see also S. Crane Rentals, Inc. v. City of Gainesville, 429 So. 2d 771, 773 (Fla. 1st DCA 1983) (“The laws which exist at the time and place of the making of a contract enter into and become a part of the contract made, as if they were expressly referred to and incorporated in its terms, including those laws which affect its construction, validity, enforcement or discharge.”).

The explicit purpose of 12 U.S.C. § 1715z-20(j) is to provide a safeguard against the displacement of elderly homeowners. The statute would be without effect if a mortgagee were permitted to foreclose on a mortgage while a “homeowner,” as that term is expressly defined in the statute, maintains the subject property as his or her principal residence. This is true especially when, as here, the “homeowner” executed the very mortgage giving the mortgagee a security interest in the subject property.

Our interpretation of the subject reverse mortgage is made rather easy in light of Congress’s clear intent to protect from foreclosure a reverse mortgagor’s surviving spouse who is maintaining the encumbered property as his or her principal residence.^[10] The subject reverse mortgage is insured by HUD pursuant to a Congressionally prescribed scheme that expressly requires deferment of the obligation to satisfy the loan secured by such mortgages until the death of the borrower and any spouse of the borrower.

G. Summary

Against the backdrop of this unambiguous Congressional mandate, it would be difficult, if not impossible, for us to construe Mrs. Smith as anything other than a “Borrower” for the purposes of Paragraph 9’s express conditions precedent. Our conclusion is reinforced by Mrs. Smith having executed the subject mortgage before a notary and two witnesses—over her pre-printed name on the subject mortgage—under a heading that reads, “BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants contained. . . .” in the mortgage (emphasis added). Our conclusion is further reinforced by the express provisions of the mortgage’s Borrower Covenant, as well as Florida’s constitutional requirement that the reverse mortgage could not have encumbered Mrs. Smith’s interest in the subject property absent her signature. Art. X, § 4(c), Fla. Const.

III. CONCLUSION

In light of the foregoing, we conclude that, as a pure question of law, Mrs. Smith was a “Borrower” as that term is contemplated in Paragraph 9 (Grounds for Acceleration of Debt) of the subject reverse mortgage. Therefore, pursuant to Paragraph 9, as a condition precedent to its entitlement to foreclosure, Reverse Mortgage Solutions was required to establish either that: (i) Mrs. Smith had died, or, (ii) as of August 5, 2013 (the date of trial), the property was no longer Mrs. Smith’s principal residence.

Because the record before us contains no facts regarding whether the property was Mrs. Smith’s principal residence as of August 5, 2013, we remand the case for a new trial limited to that issue, if Reverse Mortgage Solutions chooses to amend its complaint and proceed on that issue.^[11]

Reversed and remanded with instructions.

ROTHENBERG, J., concurs.

SHEPHERD, J., dissenting.

The labor expended by the majority to keep Kenneth Smith’s widow in her home is admirable. Unfortunately, the legal analysis used does not measure up. For this reason, I respectfully dissent.

I.

The central issue in this case is whether there was a default under the mortgage, authorizing Reverse Mortgage Solutions, Inc., to foreclose. Reverse Mortgage Solutions asserts there was a default under Paragraph 9(a)(i) of the mortgage. This paragraph reads as follows:

9. Grounds for Acceleration of Debt.

(a) Due and Payable. Lender may require immediate payment in full of all sums secured by this Security Instrument if:

(i) A Borrower dies and the Property is not the principal residence of at least one surviving borrower, or . . .

(underline emphasis added).

The applicable acceleration clause in the mortgage is triggered when: (1) a Borrower dies; (2) there is a “surviving borrower;” and (3) the property is not the residence of a surviving borrower. It was Reverse Mortgage Solution’s burden at trial to prove the existence of the default. The Court has not been provided with a transcript of the trial, and the form Final Judgment of Foreclosure includes no findings of fact. It merely states, “On the evidence presented, IT IS ORDERED AND ADJUDGED that Plaintiff’s Final Judgment of Foreclosure is GRANTED.” The trial court may have reasoned in one of two ways: (1) Final Judgment of Foreclosure was warranted because Celia Smith is not a “Borrower” under the mortgage; or (2) Celia Smith was a “Borrower,” but a Final Judgment of Foreclosure was nevertheless warranted because by the date of the trial, the home was no longer her “principal residence.” The majority grounds its reversal of the Final Judgment of Foreclosure in this case on its belief that “The trial court found that all conditions precedent had occurred based upon its legal conclusion that Mrs. Smith was not a `Borrower’ under the mortgage.” Maj. Op. at p. 6. There is no record support for the statement. The Court may as well have reasoned that Celia Smith was a “Borrower” but no longer made the home her “principal residence.”^[12]

This case should be affirmed on the strength of Applegate v. Barnett Bank of Tallahassee, 377 So. 2d 1150 (Fla. 1979). As the Florida Supreme Court explained, “Even when based on erroneous reasoning, a conclusion or decision of a trial court will generally be affirmed if the evidence or an alternative theory supports it.” Applegate, 377 So. 2d at 1152 (emphasis added). I do not believe Celia Smith was a “Borrower,” as will be demonstrated below, but even if she was, the record of proceedings may have included an alternate ground for affirmance if one had been brought to us. We should affirm the Final Judgment of Foreclosure in this case for lack of a complete record.^[13]

II.

If it is necessary to join issue on the question of whether or not Celia Smith is a “Borrower” under the mortgage document, I conclude she is not. The mortgage document in this case is a home equity conversion mortgage, insured by the United States Department of Housing and Urban Development Home Equity Conversion Mortgage (HECM) Program for Elderly Homeowners, under 12 U.S.C.A. 1715z-20. The mortgage and associated promissory note are HECM form contract documents which follow the statute. The face of the mortgage identifies the decedent, Kenneth Smith, and no other person, as the “Borrower”:

State of Florida ____ ADJUSTABLE RATE HOME EQUITY CONVERSION MORTGAGE

THIS MORTGAGE (“Security Instrument”) is given on May 08, 2008. The mortgagor is KENNETH S. SMITH, A MARRIED MAN, whose address is 9991 SW 154TH AVENUE, MIAMI, FL 33196 (“Borrower”). . . . The agreement to repay is evidenced by Borrower’s Note dated the same date as this Security Instrument (“Note”). This Security Instrument secures to Lender: (a) the repayment of the debt evidenced by the Note . . . up to a maximum principal amount Five Hundred Forty-Four Thousand One Hundred Eighty-Five and 00/100 Dollars ($544,185.00). . . .The full debt, including all amounts described in (a), (b), and (c) above, if not paid earlier, is due and payable on September 07, 2086. For this purpose, Borrower does hereby mortgage, grant and convey to Lender, the following described property located in MIAMI-DADE county, Florida:

The real property located at 9991 SW 154th Avenue, Miami, FL, in the County of Miami Dade, state of FL, described more fully on Exhibit A attached to this mortgage.

(underline emphasis added).

The majority counters that Celia Smith must be a “Borrower” under the mortgage because she signed it. The signature block, found on the last page of the mortgage document, does indeed bear Celia Smith’s signature. It reads as follows:

BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants contained in this Security Instrument and in any rider(s) executed by Borrower and recorded with it.

Witness: _____________/s/___________________ _____________/s/___________________ Signature: ______________________________ ______________________________ ______________________________ ______________________________ /s/ Kenneth S. Smith /s/ Celia Smith _______________________________ _____________________________ CELIA SMITH

However, there is nothing in the signature block (or elsewhere in the mortgage document) that indicates Celia Smith signed the document as a “Borrower.” In fact, the language of the signature block continues to reference a single “Borrower,” just as does the opening paragraph of the mortgage quoted above.^[14]

The only argument the majority offers to the contrary is its statement that “Mrs. Smith’s signature was no accident” because “it was pre-printed on the document below the line she was required to sign.” All can concede that her signature on the document was arranged with forethought and was not an accident. However, that just begs the question of the purpose of the drafters in requiring her signature.

The majority recognizes that a necessary purpose for the signature is that the mortgage would have been unenforceable absent Celia’s joinder in the document. See Art. X, §4(c), Fla. Const. (“The owner of homestead real estate, joined by the spouse if married, may alienate homestead by mortgage, sale, deed or gift . . .); Pitts v. Pastore, 561 So. 2d 297, 301 (Fla. 2d DCA 1990) (holding that a mortgage is ineffectual as a lien until such time as either the spouse joins in the alienation or the property loses its homestead status.). This imputation of purpose for Celia Smith’s signature is harmonious with the evident intent of the drafters in the first paragraph of the mortgage document. The additional imputation, interpretively imposed on the mortgage document by the majority, conflicts with the unambiguous definition and identity of the “Borrower” in the first paragraph of the document. It is a basic principle of statutory and contractual interpretation that where one interpretation of a statute or contract appears to conflict with another, the courts will choose an interpretation which harmonizes the conflicting interpretations wherever possible. See Homestead v. Johnson, 760 So. 2d 80, 84 (Fla. 2000) (“[W]e rely upon the rule of construction requiring courts to read provisions of a contract harmoniously in order to give effect to all portions thereof.”); see also Triple E Dev. Co. v. Floridagold Citrus Corp., 51 So. 2d 435, 438-39 (Fla. 1951) (“[I]f clauses in a contract appear to be repugnant to each other, they must be given such an interpretation and construction as will reconcile them if possible; if one interpretation would lead to an absurd conclusion, then such interpretation should be abandoned and the one adopted which would accord with reason and probability”). We should do so in this case.

The conclusion reached by the majority that Celia Smith is a “Borrower” on the mortgage is also counter to the express terms of the promissory note. The promissory note defines the “Borrower” as meaning “each person signing at the end of this Note.” The only person who signed the promissory note was the decedent, Kenneth Smith. Moreover, the promissory note contains substantially identical acceleration language to that found in the mortgage document. Paragraph 7 of the promissory note reads as follows in relevant part:

7. IMMEDIATE PAYMENT IN FULL

(A) Death or Sale

Lender may require immediate payment in full of all outstanding principal and accrued interest if:

(i) A Borrower dies and the Property is not the principal residence of at least one surviving borrower, or . . .

(underline emphasis added). The decision of the majority creates the anomalous result that the “Borrower” — expressly defined in two simultaneously executed and related documents to be Kenneth Smith — now has two meanings. Although I am unwilling to place my total confidence in the federal drafters of these financial instruments (see Part III, infra), I do give them more credit than does the majority in their ability to use the same word, in the same fashion, at the same time, in the same transaction.

Finally, the use of a single-borrower reverse mortgage vehicle by a married couple is not ipso facto nefarious. The calculation of the amount that can be borrowed and the size of the resulting line of credit, lump sum, or periodic payment available to the borrower varies with the age of the borrower. See Plunkett v. Castro, 2014 WL 4243384 (D.D.C. 2014) (explaining why an older borrower will almost always be able to receive a bigger loan amount). One might envision many circumstances — e.g., the need for a significant, large lump sum to apply to a medical emergency — where a married couple might find a single-borrower reverse mortgage to be appropriate for their needs. By its decision today, the majority imposes its own collectivistic view of life planning on a cadre of seniors who have demonstrated they are capable of amassing wealth and governing their own affairs. We should allow the citizenry to be their own deciders.

III.

The final question is whether the fact that the mortgage in this case is insured under the federal Home Equity Conversion Mortgage Program for Elderly Homeowners compels a contrary conclusion. The majority is of two minds on the question. The majority first agrees that “the plain language of the statute imposes an obligation only on the Secretary of HUD[^[15]] with regard to the provisions that must be contained in reverse mortgages insured by HUD” but in the next breath incorporates section 12 U.S.C.A. 1717z-20(j) into the mortgage document in this case. Maj. Op. at pp. 13-14 (emphasis added). The majority was right the first time.

The language relied upon by the majority reads as follows:

The Secretary may not insure a home equity conversion mortgage under this section unless such mortgage provides that the homeowner’s obligation to satisfy the loan obligation is deferred until the homeowner’s death, the sale of the home, or the occurrence of other events specified in regulations of the Secretary. For purposes of this subsection, the term “homeowner” includes the spouse of a homeowner.

12 U.S.C.A. 1715z-20(j). However, the majority fails to appreciate that at the time Kenneth Smith signed the mortgage document and promissory note, the Secretary was promoting and cheerfully insuring single-borrower home equity conversion mortgages in circumstances of the type before us. These actions were based on a rule sentiently created by the Secretary, which the Secretary has since all but admitted directly conflicted with 1715z-20(j), and which the United States District Court for the District of Columbia has recently confirmed to be so. Bennett v. Donovan, 4 F. Supp. 3d 5 *11 (D.D.C. 2013). The rule read as follows:

The mortgage shall state that the mortgage balance will be due and payable in full if a mortgagor dies and the property is not the principal residence of at least one surviving mortgagor, or a mortgagor conveys all or [sic] his or her title in the property and no other mortgagor retains title to the property.

24 C.F.R. §206.27(c)(1) (adopted August 16, 1995). Asked by the United States Court of Appeals for the District of Columbia Circuit during an intermediate appellate phase of the Bennett litigation to justify the rule in the face of the governing statute, the only explanation the Secretary could muster for flouting the plain language of the federal statute was “concern[] about the scenario in which a homeowner, after taking out a reverse mortgage, marries a spouse—particularly a young spouse—and thereby significantly increases a lender’s risk.” Bennett v. Donovan, 703 F. 3d 582, 586 (D.C. Cir. 2013).^[16] More recently, just five months ago — perhaps recognizing that the United States Congress was right all along or, forfend, having a momentary mental relapse to that quaint time in the past when it was dogma that the Congress made the laws and the Executive carried them out — the Secretary, at great expense and additional program risk, is now offering to purchase single-borrower home equity loans of the type involved in this case from the private lenders who funded them and allowing the non-borrowing spouse to remain in the home until she dies or leaves the residence. See Letter 2015-03 from U.S. Dep’t of Hous. and Urban Dev., to All Approved Mortgagees at p. 8 et seq. (January 29, 2015) (on file with author).

In all of this, HUD recognizes that section 1715z-20(j) does not empower it to void or alter the terms of a bona fide mortgage contract between a “Borrower” and a private lender. Id. at p. 3; Bennett v. Donovan, 797 F. Supp. 69, 77 (D.D.C. 2011) (“As the Secretary points out, whether the mortgages were properly insured or not does not affect the mortgage’s own contractual terms, and it is these terms that require Plaintiff’s spouses’ estates to repay the mortgages or sell the houses.”); see also United States v. Neustadt, 366 U.S. 696, 709 and n. 24 (1961) (finding that existence of mortgage insurance program did not create a legal relationship between the government and the individual mortgagor.). Yet, the majority somehow seeks to empower HUD where Congress through section 1715z-20(j) does not. Perhaps the majority is swayed by the initial-appearing heavy-handedness or unfairness of the program. However, there is no allegation of fraud, misrepresentation, or trickery in this case, and fairness is in the eye of the beholder. As explained in full detail in Plunkett, HUD incentivized this program in this fashion. It does not follow that just because HUD went rogue, agreements made between private parties are ipso facto unenforceable. In this case, a private lender and a private individual made their own private deal. We should not contort ourselves to impose our own view of what is right or good. “Law is something more than will exerted as an act of power.” Hurtado v. California, 110 U.S. 516, 535 (1884).

I would affirm the decision of the trial court.

Not final until disposition of timely filed motion for rehearing.

[1] Unlike a traditional mortgage arrangement, in a reverse mortgage arrangement, the lender, after determining the value of the borrower’s principal residence, generally will make regular (usually monthly) payments to the borrower during the borrower’s lifetime. The note’s principal amount is derived by a lender formula that includes the sum of the value of the lender’s payments to the borrower, closing costs, accrued interest, insurance and servicer/lender fees. See, e.g., Bennett, 703 F.3d at 584-85. While the subject note and mortgage both reference a “Loan Agreement” (which, presumably, defines the monthly amount paid to the borrower and the calculation of the note’s principal), no Loan Agreement is contained in the record on appeal. The subject note’s principal amount is $544,185.

[2] See 12 U.S.C. § 1715z-20(j), infra note 4.

[3] Paragraph 7 of the Final Judgment of Foreclosure expressly forecloses all of Mrs. Smith’s interest in the subject property and implicitly recognizes that she is still alive. Hence, the error appears on the face of the judgment on appeal.

[4] This statutory provision, discussed in more detail in section II(F), below, reads in its entirety, as follows:

(j) Safeguard to prevent displacement of homeowner

The Secretary may not insure a home equity conversion mortgage under this section unless such mortgage provides that the homeowner’s obligation to satisfy the loan obligation is deferred until the homeowner’s death, the sale of the home, or the occurrence of other events specified in regulations of the Secretary. For purposes of this subsection, the term “homeowner” includes the spouse of a homeowner. Section 1647(b) of Title 15 and any implementing regulations issued by the Board of Governors of the Federal Reserve System shall not apply to a mortgage insured under this section.

[5] With regard to the note, only Mr. Smith is referenced as the “Borrower.” Mrs. Smith is neither mentioned nor referenced in the note. Reverse Mortgage Solutions, however, seeks no relief from Mrs. Smith based on the note. It is only Mrs. Smith’s status as a mortgagor that is implicated in this appeal.

[6] The Borrower Covenant reads in its entirety, as follows:

BORROWER COVENANTS that Borrower is lawfully seised of the estate hereby conveyed and has the right to mortgage, grant and convey the Property and that the Property is unencumbered. Borrower warrants and will defend generally the title to the Property against all claims and demands, subject to any encumbrances of record.

[7] It is not clear from the record how the subject property was titled at the time the mortgage was executed by Mr. and Mrs. Smith. Reverse Mortgage Solutions’ verified complaint, however, alleges that Mrs. Smith is the owner of the subject property, an allegation Mrs. Smith admits in her answer.

[8] Paragraph 17 of the mortgage reads, in relevant part, as follows: “This Security Instrument shall be governed by Federal law and the law of the jurisdiction in which the Property is located.”

[9] The record is replete with proof that the subject mortgage is a “home equity conversion mortgage” issued and insured under the auspices of 12 U.S.C. § 1715z-20. The subject mortgage references: (i) a Federal Housing Authority case number, (ii) requirements promulgated by the HUD Secretary, (iii) certain events of default triggering the lender’s right to foreclosure if authorized by the HUD Secretary, (iv) the right of the lender to accelerate the amounts secured by the mortgage if the HUD Secretary notifies the lender within eight months of loan initiation that the loan is not insurable pursuant to the National Housing Act (included in which is 12 U.S.C. § 1715z-20). Additionally, both the verified complaint and the mortgage expressly reference a second mortgage—in which HUD is the mortgagee—securing any payments HUD may make on behalf of the Borrower pursuant to the National Housing Act. Indeed, HUD was named as a defendant in the action and HUD’s second mortgage was foreclosed in the Final Judgment of Foreclosure.

[10] It appears that, as part of the reverse mortgage origination process, some reverse mortgage originators are alleged to have advised one elderly spouse to execute a quit-claim deed, deeding their jointly owned property to the other spouse, so that a single “Borrower” would appear on all paperwork. See, e.g., Bennett, 703 F.3d at 585; Welte v. Wells Fargo Bank, N.A., No. EDCV-13-00463JGB, at *2-3 (C.D. Cal. Dec. 18, 2013); Wiseman v. First Mariner Bank, No. ELH-12-2423, at *4 (D. Md. Sept. 23, 2013). No such allegations have been made in this case. In fact, as mentioned earlier, the verified complaint specifically alleges that Mrs. Smith owns the subject property, and Mrs. Smith executed the subject mortgage. We need not, and do not, reach the issues implicated in those cases where the nature of the surviving spouse’s ownership interest in the subject property is in dispute.

[11] Of course, nothing in this opinion should be construed to limit Reverse Mortgage Solutions’ ability to file a new foreclosure action upon the future occurrence of any of the conditions precedent outlined in Paragraph 9 of the subject mortgage.

[12] The “principal residence” issue was squarely before the trial court. In her Answer, Celia Smith asserted as a defense that “This mortgage should not be accelerated as the defendant, CELIA ELMIRA SMITH, is still alive and living in the real property as her homestead.” (emphasis added).

[13] Also, it is improper for this court to remand this case “for a new trial to allow the trial court to adjudicate specifically whether the other condition precedent, [the principal residence question,] to Appellee’s right to foreclose has occurred.” See Maj. Op. at p. 4 (emphasis added). This case has had its trial. If it was necessary for Reverse Mortgage Solutions to prove that “the Property [was] not the principal residence” of Celia Smith, the existence of the Final Judgment makes clear that the lender must have done so. The majority forgets that “[i]n appellate proceedings, the decision of a trial court has the presumption of correctness.” Applegate, 377 So. 2d at 1152.

[14] The majority insinuates that Celia Smith may have been in title to the property at the time Kenneth Smith executed the mortgage. The majority places its reliance for this inference on the allegation found in Paragraph 7 of the Verified Complaint for foreclosure that “Defendant(s), CELIA ELMIRA SMITH, own(s) the property.” Of course, the Verified Complaint for foreclosure was filed after Kenneth Smith’s death. Ironically, if one were to carry the insinuation of the majority to its logical conclusion, then Celia Smith would be a borrower, liable under the promissory note as well. See Maj. Op. at p. 9 (“`BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants contained in the Security Instrument . . .'”); see also R. at 16 (“[Mortgage Agreement Paragraph 1:] Payment of Principal and Interest. Borrower shall pay when due the principal of, and interest on, the debt evidenced by the note.”). The logic of the majority has the additional unintended consequence of placing Reverse Mortgage Solutions, Inc. in violation of 12 C.F.R. § 202.7(d)(1) (2014) (“A creditor shall not deem the submission of a joint financial statement or other evidence of jointly held assets as an application for joint credit.”).

[15] The United States Department of Housing and Urban Development.

[16] Technically speaking, the HECM program is administered by Federal Housing Administration, commonly known as the FHA. The FHA is an agency housed within the United States Department of Housing and Urban Development. The FHA was created pursuant to the National Housing Act of 1934, Pub. L. No. 73-479, 48 Stat. 847 (1934), and has long had as its purpose the expansion of mortgage access and the enablement of home ownership. In this case, it simply forgets its place in our constitutional firmament.

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DAVID WEINER, individually, and on behalf of other members of the public similarly situated, Plaintiff,
v.
OCWEN FINANCIAL CORPORATION, a Florida corporation, and OCWEN LOAN SERVICING, LLC, a Delaware limited liability company, Defendants.

MEMORANDUM AND ORDER

MORRISON C. ENGLAND, Jr., Chief District Judge.

Through the present action, Plaintiff David Weiner (“Plaintiff”) alleges that his mortgage servicer, Ocwen Loan Servicing LLC (“OLS”) and OLS’ parent company, Ocwen Financial Corporation (collectively referred to as “Ocwen” unless otherwise indicated), improperly assessed default-related service fees that contained substantial, undisclosed mark-ups which violated the terms of his mortgage contract. Plaintiff further alleges that Defendants misapplied his payments in violation of the terms of the applicable deed of trust.

Plaintiff also purports to represent a class of borrowers who have been similarly damaged by Defendants’ allegedly improper actions in this regard. Ocwen now moves to dismiss Plaintiffs’ Complaint for failure to state a claim upon which relief can be granted in accordance with Federal Rule of Civil Procedure 12(b)(6).^[1] Additionally, with respect to Plaintiff’s claims premised on fraud, Ocwen further assert those claims fail because they are not pled with the particularity required by Rule 9(b). As set forth below, Ocwen’s Motion is DENIED.^[2]

BACKGROUND^[3]

Ocwen assumed the servicing of Plaintiff’s home mortgage in late 2012 or 2013. According to the Complaint, the previous servicer on the loan, GMAC, had paid Plaintiff’s property taxes in 2010 and accordingly had established an escrow account for Plaintiff’s pre-payment of those expenses in the future. Plaintiff nonetheless claims that after fully reimbursing GMAC for the taxes it paid in early 2011, and paying a $400.00 escrow fee, Plaintiff arranged with GMAC that he would pay his own property taxes going forward and would provide timely proof of his payments. Despite meeting his commitment in that regard, Plaintiff asserts that after Ocwen became his loan servicer it began charging a $600.00 annual escrow account fee and further began diverting funds to that escrow account such that the account carried a positive balance of more than $10,000.00. Plaintiff was denied any access to those funds. Plaintiff maintains that this diversion resulted in Ocwen failing to properly apply his interest and principal payments, which he alleges are supposed to be credited before any escrow amounts are withheld.^[4] This misallocation resulted ultimately in Ocwen’s refusal to accept Plaintiff’s interest and principal payments altogether on grounds that they are insufficient to satisfy the defaulted amount on the loan. Plaintiff states that Ocwen’s improper diversion of escrow funds has made him unable to claim interest deduction on his federal and state tax returns, has subjected him to harassing phone calls, has precluded him from refinancing his loan, and has placed Plaintiff in constant fear of imminent foreclosure on his home.

In addition to misallocation of loan payments and being denied access to surplus funds diverted to his escrow account, Plaintiff also claims that once Ocwen succeeded in forcing him into default by misapplying his loan payments, it proceeded to improperly assess marked-up fees for default related services on his mortgage accounts, including so-called Broker Price Option (“BPO”) fees, title report, and title search fees. By way of example, Plaintiff asserts that Ocwen assessed BPO fees of $109.00 and $110.00 on September 4, 2013, and February 24, 2014, respectively, despite knowing that the actual cost of a BPO is only approximately $50.00. Additionally, with respect to fees for services related to the examination of title, Plaintiff claims he was assessed a title search fee on June 9, 2014 in the amount of $829.00, despite the fact that such a fee typically ranges between $150.00 and $450.00. In both instances, according to Plaintiff, the markup on fees by Ocwen was double the appropriate amount.

According to Plaintiff, Ocwen profited from this arrangement, and was able to avoid detection, because computer management programs designed to assess fees were spun off by Ocwen, on August 10, 2009, to Altisource. The Chairman of the Board for both Altisource and Ocwen was the same individual, William C. Erbey, and according to the Complaint Erbey owns some 27 percent of the common source of Altisource. Because of the interconnection between the two companies, Plaintiff alleges that both entities benefit from inflated fees. More specifically, the Complaint states:

Ocwen directs Altisource to order and coordinate default-related services, and, in turn, Altisource places orders for such services with third-party vendors. The third-party vendors charge Altisource for the performance of the default-related services, [and] Altisource then marks up the price of the vendors’ services, in numerous instances by 100% or more, before “charging the services to Ocwen, In turn, Ocwen bills the marked-up fees to homeowners.”

Compl., ¶ 52.

Plaintiff points out that the applicable Deed of Trust^[5] provided that, in the event of default, the loan servicer is authorized to:

pay for whatever is reasonable or appropriate to protect the note holder’s interest in the property and rights under the security instrument, including protecting and/or assessing the value of the property, and securing and/or repairing the property.

Id. at ¶ 55; see also Deed of Trust, ¶ 9.

The Deed of Trust further discloses that any such “amounts disbursed by the servicer to a third party shall become additional debt of the homeowner secured by the deed of trust and shall bear interest at the Note rate from the date of “disbursement.” Compl., ¶ 56. Moreover, according to Plaintiff, the Promissory Note discloses that with respect to “Payment of the Note Holder’s Costs and Expenses,” if there is a default, the homeowner will have to “pay back” costs and expenses incurred in enforcing the Note to the extent not prohibited by applicable law. Plaintiff therefore asserts that the mortgage instruments provide that the servicer will “pay for default-related services when reasonably necessary, and will be reimbursed of “paid back” by the homeowner for amounts “disbursed.” Compl., ¶ 58. Plaintiff maintains that nowhere is it disclosed to borrowers that Ocwen may engage, as it purportedly does, in self-dealing to mark up the actual cost of those services to make a profit. Id.

Plaintiff’s Class Action Complaint alleges violations of: 1) California’s Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, et seq. (“UCL”); 2) The Racketeer Influenced and Corrupt Organizations Act, 182 U.S.C. §§ 1962(c) and (d) (“RICO”); and 3) the Rosenthal Fair Debt Collection Practices Act, Cal. Civ. Code § 1788, et seq. (“RFDCPA”). Plaintiff also includes state law claims for unjust enrichment, fraud and breach of contract, and he further seeks to bring his claims on behalf of both himself and others similarly situated by way of a class action under Rule 23.

STANDARD

A. Rule 12(b)(6)

On a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Rule 8(a)(2) “requires only `a short and plain statement of the claim showing that the pleader is entitled to relief’ in order to `give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). A complaint attacked by a Rule 12(b)(6) motion to dismiss does not require detailed factual allegations. However, “a plaintiff’s obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. (internal citations and quotations omitted). A court is not required to accept as true a “legal conclusion couched as a factual allegation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). “Factual allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555 (citing 5 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1216 (3d ed. 2004) (stating that the pleading must contain something more than “a statement of facts that merely creates a suspicion [of] a legally cognizable right of action”)).

Furthermore, “Rule 8(a)(2) . . . requires a showing, rather than a blanket assertion, of entitlement to relief.” Twombly, 550 U.S. at 555 n.3 (internal citations and quotations omitted). Thus, “[w]ithout some factual allegation in the complaint, it is hard to see how a claimant could satisfy the requirements of providing not only `fair notice’ of the nature of the claim, but also `grounds’ on which the claim rests.” Id. (citing Wright & Miller, supra, at 94, 95). A pleading must contain “only enough facts to state a claim to relief that is plausible on its face.” Id. at 570. If the “plaintiffs . . . have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed.” Id. However, “[a] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and `that a recovery is very remote and unlikely.'” Id. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).

A court granting a motion to dismiss a complaint must then decide whether to grant leave to amend. Leave to amend should be “freely given” where there is no “undue delay, bad faith or dilatory motive on the part of the movant, . . . undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of the amendment . . . .” Foman v. Davis, 371 U.S. 178, 182 (1962); Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (listing the Foman factors as those to be considered when deciding whether to grant leave to amend). Not all of these factors merit equal weight. Rather, “the consideration of prejudice to the opposing party . . . carries the greatest weight.” Id. (citing DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 185 (9th Cir. 1987)). Dismissal without leave to amend is proper only if it is clear that “the complaint could not be saved by any amendment.” Intri-Plex Techs. v. Crest Group, Inc., 499 F.3d 1048, 1056 (9th Cir. 2007) (citing In re Daou Sys., Inc., 411 F.3d 1006, 1013 (9th Cir. 2005); Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989) (“Leave need not be granted where the amendment of the complaint . . . constitutes an exercise in futility . . . .”)).

B. Rule 9(b)

A plaintiff must plead allegations of fraud and those that “sound in fraud” with particularity. Fed. R. Civ. P. 9(b); Vess v. Ciba-Geigy Corp. U.S.A., 317 F.3d 1097, 1103-05 (9th Cir. 2003). Conclusory allegations of fraud are insufficient. Moore v. Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir. 1989).

A pleading satisfies Rule 9(b) when it is “specific enough to give defendants notice of the particular misconduct. . . . so that they can defend against the charge and not just deny that they have done anything wrong.” Vess, 317 F.3d at 1106 (internal quotation marks and citation omitted); accord Moore, 885 F.2d at 540 (“A pleading is sufficient under Rule 9(b) if it identifies the circumstances constituting fraud so that a defendant can prepare an adequate answer from the allegations.”). As a result, the plaintiff must plead the “who, what, when, where, and how” of the alleged fraud. Vess, 317 F.3d at 1106 (internal quotation marks and citations omitted). Further, if the plaintiff claims that a statement is false or misleading, “[t]he plaintiff must set forth what is false or misleading about a statement, and why it is false.” In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994).

Despite this heightened standard, the Ninth Circuit has opined that courts “cannot make Rule (b) carry more weight than it was meant to bear.” Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997); see also Schlagal v. Learning Tree Int’l., 1998 WL 1144581 at *8 (C.D. Cal. Dec 23, 1998) (“The Court must strike a careful balance between insistence on compliance with demanding pleading standards and ensuring that valid grievances survive.”) Instead, Rule 9(b) “must be read in harmony with Fed. R. Civ. P. 8’s requirement of a `short and plain’ statement of the claim.” Baas v. Dollar Tree Stores, 2007 WL 2462150 at *2 (N.D. Cal. August 29, 2007).

ANALYSIS

A. Breach of Contract Claim

In his opposition, Plaintiff makes it clear that his breach of contract claim is “straightforward” and does not involve the fraud based allegations he makes elsewhere in his complaint. Instead, Plaintiff limits his contractual challenge to the manner in which Ocwen applies mortgage payments. Pl.’s Opp’n, 19:19-20:2. Plaintiff avers that Ocwen diverted funds from Plaintiff’s monthly mortgage payments to an escrow account without first applying funds to the interest and principal balance of the loan, as required by the Deed of Trust. Compl., ¶¶ 76, 77. According to Plaintiff, Ocwen diverted funds to an escrow account for taxes and insurance despite the fact that Plaintiff was paying those fees himself, and despite the fact that Ocwen had agreed he could do so long as Plaintiff provided timely proof of such payments, which he claims he in fact submitted. Id. at ¶ 93. As a result, Ocwen’s escrow account has grown to more than $10,000.00, despite the fact that it has never once been used to pay property taxes and insurance. Id. at ¶ 95. Plaintiff contends that Ocwen’s failure to properly credit his interest and principal payments “has burdened his accounts with unscrupulous fees and forced his loan into default.” Id. at ¶ 97. In addition to default, Plaintiff also claims that Ocwen’s conduct has made him unable to claim interest deductions on his federal and state tax returns, or to refinance his loan.” Id. at ¶ 98.

“A cause of action for damages for breach of contract is comprised of the following elements: (1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendants’ breach, and (4) the resulting damages to plaintiff. Careau & Co., v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371, 1388 (1990). Here, there appears no question that the mortgage contract constitutes the requisite agreement, and that Plaintiff “performed” by paying the amounts due for principal and interest as specified by the contract. The salient issue is whether Ocwen breached the agreement by, as Plaintiff alleges, improperly diverting money into an escrow account when Ocwen had agreed otherwise.

According to Ocwen, to state a breach of contract claim under Plaintiff’s payment misapplication theory, Plaintiff must allege which payments he contends were improperly applied and how the application that was applied differed from the payment hierarch established by the Deed of Trust. Ocwen instead characterizes Plaintiff’s contentions as only “generalized allegations” without any factual specificity. To the contrary, however, Plaintiff’s Complaint recites the payment application hierarchy specifically set forth in the Deed of Trust, which requires that payments be credited to interest and then principal before credit can be taken for any other purpose, including escrow items (like property taxes and liability insurance) and default-related charges. Compl., ¶ 76. Plaintiff then contends that Ocwen misapplies payments to divert interest and principal payments to “escrow” accounts, even when homeowners pay their own property taxes and maintain proper insurance. Id. at ¶ 77. Those allegations meet the requirement that a breach be alleged, and for purposes of testing the pleading the Court must accept their veracity.

While Ocwen claims that Plaintiff’s failure to pay taxes in 2010 caused the previous loan servicer, GMAC, to properly open an escrow account as withholding funds is authorized by the Deed of Trust in those circumstances, Plaintiff asserts that GMAC agreed in early 2011 that Plaintiff could in fact pay his own property taxes going forward so long as timely proof of such payments was provided. Id. at ¶ 93. The Court’s reading of Plaintiff’s Complaint indicates this arrangement continued for as much as two years, until Ocwen took over the servicing of Plaintiff’s loan from GMAC in late 2012 or 2013. While Ocwen appears to argue that it was entitled to resume an escrow arrangement despite GMAC’s alleged agreement to the contrary, that contention is, at best, problematic. Nor does Ocwen’s claim that any waiver of escrow be in writing negate Plaintiff’s purported agreement and course of conduct with GMAC, arrangements that were in place for a significant amount of time before Ocwen’s involvement with Plaintiff’s loan even began.

Ocwen further claims that Plaintiff has not identified, as he must, the payments he contends were improperly applied. That contention also does not carry the day for Ocwen’s attack on Plaintiff’s breach of contract claim. Plaintiff claims not only that Ocwen began charging a fee of $600.00 per year after it assumed the servicing of Plaintiff’s mortgage loan in late 2012 or early 2013, but also that its subsequent diversion of funds to the escrow account resulted in a positive balance in that account of more than $10,000.00. Id. at ¶¶ 91, 95. Those allegations are specific enough to apprise Ocwen of just how Plaintiff claims the diversion occurred, the time frame involved and the amount of monies involved. Finally, between the amount of the allegedly diverted funds and Plaintiff’s claim that the diversion forced him into foreclosure, the contract claim’s damage component is also satisfied.

The Court concludes that Ocwen’s request for dismissal of Plaintiff’s Seventh Cause of Action, for breach of contract, is misplaced. Ocwen’s motion is therefore denied as to that claim.

B. Factual Specificity Required for Fraud-Based Claims

In addition to the contractual breach identified above, Plaintiff also asserts, for his Sixth Cause of Action, a state law claim for fraud. Plaintiff also pleads a number of other claims premised on the same fraudulent conduct. Those claims include the First Cause of Action, premised on violations of California’s UCL, the Second and Third Causes of Action, both of which allege RICO violations, and the Fourth Cause of Action asserting a RFDCPA violation.

Plaintiff’s fraud claims are factually grounded on allegations that Ocwen marked up BPO and title search fees by as much as 100 percent without disclosing the vendor’s markup. According to the Complaint, Ocwen is able to conceal its fee markup given its spin-off of servicing programs previously done in house (by the Ocwen Solutions line of businesses) to an ostensibly independent company, Altisource. Id. at ¶¶ 36-37. According to Plaintiff, however, Altisource and Ocwen share the same Chairman of the Board, William C. Erby, and Erbey owns not only 13 percent of Ocwen’s common stock but 27 percent of the common stock of Altisource as well. Id. at ¶¶ 37-38. Plaintiff goes on to claim that Ocwen is contractually obligated to purchase mortgage and technology services from Altisource under service agreements that extend through 2020. That has resulted, according to Plaintiff, in Ocwen being Altisource’s largest customer, accounting for some 60 percent of its total annual revenue. Id. at ¶ 44.

After citing evidence suggesting that Ocwen’s use of related companies has raised serious concerns about whether the transactions between the two companies are priced fairly (as opposed to inflated fees through conflicted business relationships), Plaintiff claims that Ocwen in fact directs Altisource to order and coordinate default related services with Altisource marking the arrangements for the provision of such services by third-party property preservation vendors. After the vendors charge Altisource for their services, Plaintiff alleges that Altisource, in turn, marks up their price before “charging” the cost to Ocwen who then bills the marked up fees to homeowners. Id. at ¶ 52. As indicated above, Plaintiff personally claims that he has been charged BPO fees of $109.00 and $100.00, and title search fees of $829.00 when those services should have run just over $100.00 for BPOs and between $150.00 and $450.00 for a title search. Id. at ¶¶ 62, 69, 101, 103. Plaintiff further provides the dates that both the BPO fees (September 4, 2013 and February 27, 2014, respectively) and the title search fees (June 9, 2014) were assessed on his mortgage account. Id. at ¶¶ 101, 103.

Ocwen correctly points out that allegations sounding in fraud must be pled with particularity. Fed. R. Civ. P. 9(b); Vess v. Ciba-Geigy Corp. U.S.A., 317 F.3d at 1103-05). Conclusory allegations of fraud are insufficient. Moore v. Kayport Package Express, Inc., 885 F.2d at 540. The same heightened pleading standard also applies to UCL claims (Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009) and to claims alleging RICO violations. See Schreiber Distrib. Co. v. Serv-Well Furniture Co., Inc., 806 F.2d 1393, 1400-01 (9th Cir. 1986). Additionally, with respect to Plaintiff’s RFDCPA claim, factual particularity is also required. Lopez v. Professional Collection Consultants, 2011 WL 4964886 at *2 (C.D. Cal. Oct. 19, 2011).

Given the above-summarized description of Plaintiff’s accusations of fraudulent behavior against Ocwen, which describe the structure of Ocwen’s scheme to charge marked-up default services through use of a spin-off company with shared management and ownership, as well as the specifics of how those marked up fees were charged against Plaintiff (with both dates and the alleged mark-up figures described in detail), the Court squarely rejects Ocwen’s claim that Plaintiff’s complaint utterly fails to state any specific evidence to supports its claims of misrepresentation and/or omission. Plaintiff further cites language from the Deed of Trust which, fairly read, permits Ocwen to be reimbursed for reasonable and appropriate fees but not marked up fees designed to make a profit.

In Kirkeby v. JP Morgan Chase Bank, N.A., 2014 WL 4364836 (S.D. Cal. Sept 3, 2014), a case cited by Ocwen as supporting its position, the complaint only generally alleged the defendants’ default-related fee practice but alleged “no specifics as to the fraud allegedly committed on Plaintiff individually” and no allegations regarding dates or how the fees in question were categorized. Id. at *4. Plaintiff’s complaint, on the other hand, provides specific allegations as described above. Those allegations, taken as a whole, are more than enough to satisfy even the heightened pleading standard applicable to fraud-related claims.

C. Economic-Loss Doctrine

In addition to arguing that Plaintiff’s fraud-based claims have not been pled with the requisite specificity, Ocwen also takes specific aim at Plaintiff’s Sixth Cause of Action, for common law fraud, on grounds that it is barred by the so-called economic-loss doctrine. Under California law, the economic-loss doctrine prevents those bound by contract from suing in tort, unless they allege harm distinct from that that stemming from the breached contract. See FoodSafety Net Servs. v. Eco Safe Sys. USA, Inc., 209 Cal. App. 4th 1118, 1130 (2010) ([A] party alleging fraud or deceit in connection with a contract must establish tortious conduct independent of a breach of the contract itself, that is, violation of `some independent duty arising from tort law.'” (quoting Robinson Helicopter Co. v. Dana Corp., 34 Cal. 4th 979, 990 (2004)); Giles v. GMAC, 494 F.3d 865, 874-75 (9th Cir. 2007). Asserting that Plaintiff’s fraud allegations hinge completely on the assumption that the challenged fees constitute a breach of the Deed of Trust, Ocwen argues that Plaintiff’s fraud claim is precluded.

In Bias v. Wells Fargo & Co., 942 F.Supp. 2d 915 (N.D. Cal. 2013, under circumstances nearly identical to those of this case, the plaintiff challenged Wells Fargo’s practice of assessing unlawfully marked-up BPO fees on the accounts of borrowers in default. The Northern District was unpersuaded by Wells Fargo’s argument that its conduct amounted, at most, to breach of contract. Id. at 938 n.18. See also Young v. Wells Fargo, 671 F. Supp. 2d 1006, 1034-35 (S.D. Iowa 2009) (allegations that Wells Fargo assessed unnecessary default-related service fees went beyond a mere breach of contract and instead amounted to “a systematic course of conduct to defraud mortgage borrowers”). Here, while Ocwen was clearly entitled under the terms of the Deed of Trust to be reimbursed for fees it paid to protect its security interest in defaulted property, according to Plaintiff’s Complaint it went well beyond any contractual right in that regard by failing to disclose that the fees for which it sought reimbursement had been significantly marked-up. Those allegations are sufficient to save Plaintiff’s fraud claim from being barred under the economic-loss doctrine.

D. Statute of Limitation as to RFDCPA Claim

In his Fourth Cause of Action, Plaintiff claims that Ocwen violated the RFDCPA which prohibits a debt collector from using “any false deceptive, or misleading representation or means in connection with the collection of any debt.” Compl., ¶ 171, citing 15 U.S.C. § 1692e. By knowingly and actively concealing Ocwen’s mark-up for default related services, Plaintiff contends that those provisions have been abrogated.

In addition to arguing that Plaintiff’s RFDCPA claim is subject to the heightened pleading requirement of a fraud based claim, an assertion the Court has already rejected above, Ocwen also argues that the claim is barred by one year statute of limitations contained in California Civil Code § 1788.3(f). Although Ocwen concedes that tolling may result in an extension of that limitations period, it claims that Plaintiff “has not alleged the required facts to suggest he was `induced or tricked by [his]adversary’s misconduct into allowing the filing deadline to pass.”” Ocwen’s Mot., 10:1-3, citing Wilson v. Gordon & Wong Law Grp., P.C., 2013 WL 5230387 at *3 (E.D. Cal. Sept. 16, 2013 (dismissing RFDCPA claims as time-barred where plaintiff’s tolling allegations were conclusory).

Plaintiff claims that tolling has occurred due to Ocwen’s “knowing and active concealment, denial, and misleading actions” designed to “conceal the true character, quality, and nature of its assessment of marked-up fees on homeowners’ loan accounts.” See Compl., ¶¶ 105, 106. As set forth above, Plaintiff has alleged specific instances where he was assessed default-related fees whose mark-up was not disclosed. Moreover, and in any event, as Plaintiff points out, he claims to have been assessed marked-up fees occurred on February 27, 2014 and June 9, 2014, respectively, both of which would fall within the one year preceding the filing of the instant complaint on November 5, 2014. Either way, Ocwen’s contention that Plaintiff’s RFDCPA claim is time barred lacks merit.

E. RICO Claims

To state a RICO claim under either 18 U.S.C. § 1962(c) or (d), as Plaintiff purports to do in his Second and Third Causes of Action, he must first plead the existence of an enterprise as that term is defined by RICO. The requisite enterprise can be “any individual partnership corporation, association or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” 18 U.S.C. § 1961(4); see also Eclectic Props. East, LLC v. Marcus & Millichap Co., 751 F.3d 990, 997 (9th Cir. 2014); Sanford v. MemberWorks, Inc., 625 F.3d 550, 559 (9th Cir. 2010). In order to allege an association-in-fact enterprise, a plaintiff must allege: 1) “a group of persons associated together for a common purpose of engaging in a course of conduct,” 2) “an ongoing organization, either formal or informal,” and 3) that “the various associates function as a continuing unit.” Odom v. Microsoft Corp., 486 F.3d 541, 552-53 (9th Cir. 2007). The enterprise must consist of at least two entities, and must be more than the RICO defendant “referred to by a different name.” See Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001).

A viable RICO claim under § 1962(c) must allege conduct by a qualifying enterprise through a pattern of racketeering activity. Walter v. Drayson, 538 F.3d 1244, 1237 (9th Cir. 2008). Consequently, in addition to demonstrating the existence of the requisite enterprise, predicate racketeering acts must also be identified. Ocwen contends that Plaintiff’s § 1962(c) RICO claim fails on both those counts. In addition, with regard to Plaintiff’s § 1962(d) claim for conspiracy to violate RICO, Ocwen also argues that because Plaintiff has demonstrated no substantive RICO violation, any related conspiracy claim also necessarily fails. Turner v. Cook, 362 F.3d 1219, 1231 n.17 (9th Cir. 2004) (affirming dismissal of § 1962(d) claim where plaintiff had failed to allege the predicate § 1962(c) claim). Therefore, in assessing the viability of Plaintiff’s RICO claim the Court will begin by considering first whether a qualifying enterprise has been identified and, if it has, will then proceed to the question of whether the Complaint adequately alleges a predicate racketeering act sufficient for purposes of RICO.

1. Enterprise

Plaintiff alleges Ocwen, along with Altisource and Ocwen’s property preservation vendors, qualify as an associated-in-fact enterprise for RICO purposes under 28 U.S.C. § 1961(4). Compl., ¶ 141. As Ocwen recognizes, however, Plaintiff’s RICO claim is based primarily on the contention the Ocwen and Altisource comprise such an enterprise. Ocwen’s Mot., 13:16-17, citing Compl, ¶¶ 2, 35-50. As stated above, Plaintiff alleges that “Ocwen directs Altisource to order and coordinate default-related services,” with Altisource then placing orders for such services and charging Ocwen “marked up” fees, which in turn are passed on to borrowers. Compl., ¶ 52. While Ocwen contends there is nothing wrong with it charging to borrowers the fee it paid to Altisource, whether marked-up or not, the fact remains that Plaintiff specifically alleges that Altisource and Ocwen are related companies with at least partially shared ownership and management such that they do not operate on an “arm’s length” basis. The two companies acting together to collude in passing on “marked-up” default-related fees to unwitting borrowers is, according to Plaintiff, the RICO enterprise. The fact that the arrangement may have benefitted both companies does not preclude it being effectuated by way of the enterprise. Additionally, while related, the two companies appear to possess a distinct legal status which satisfied RICO’s requirement that more than one entity be involved.

As Plaintiff points out, the definition of an associated-in-fact enterprise is “not very demanding.” Odom, 486 F.3d at 548. Significantly, too, under controlling Ninth Circuit precedent, RICO must in any event “be liberally construed to effectuate its remedial purposes.” Id. at 547. In addition to identifying the contours of the two companies as stated above, Plaintiff makes specific allegations pertaining to the “policies and procedures developed by Ocwen’s executives, including:

funneling default-related services through [Ocwen’s] affiliated company, Altisource, to disguise unlawful mark-ups of services provided by third parties; providing statements that conceal the true nature of the marked-up default-related service fees; using mortgage loan management software designed to assess undisclosed marked-up fees on borrowers accounts; and failing to provide borrowers with accurate documentation to support assessment of fees for BPOs.

Compl., ¶ 145.

In Bias, like the present case, the plaintiff alleged that defendants formed an enterprise to unlawfully mark-up default-related fees, with borrowers ultimately being charged a fee significantly in excess of what third-party vendors actually charged for those services. Similar too are allegations that an inter-company division of defendant Wells Fargo called Premiere Asset Services participated as a member of the enterprise by creating the impression that it was an independent company providing BPOs. Although Bias differs from this case in the sense that Wells Fargo is claimed never to have actually paid the marked-up invoices, given the interrelationship between Ocwen and Altisource, and that fact that payments benefitted both companies, that factor is not dispositive in distinguishing Bias from the present case, despite Ocwen’s argument to the contrary.

The Bias court found that plaintiffs met both the distinct entity and the “common purpose” requirements for alleging an associated-in-fact enterprise under RICO. Bias, 942 F. Supp. 2d at 940-41. By identifying both Wells Fargo and at least one other entity, Premiere Asset Services, as participating as a member of the enterprise, plaintiffs satisfied the requirement that two different members be “associated together for a common purpose to maximize profits through concealment of marked-up fees.” Id. This analysis applies squarely to the present case and causes the Court to conclude that Plaintiff’s RICO claim adequately pleads the existence of a RICO enterprise.

2. Predicate Act

As the requisite “predicate act” for establishing RICO liability, Plaintiff alleges that Ocwen engaged in mail or wire fraud in violation of RICO by concealing, in statements transmitted to borrowers, its mark-up of default related fees. Compl., ¶¶ 152-57. Additionally, according to Plaintiff, `[b]y disguising the true nature of amounts purportedly owed in communications to borrowers,” the enterprise in which Ocwen participated “made false statements using the Internet, telephone, facsimile, United States mail, and other interstate commercial carriers” (id. at ¶ 152), and “fraudulently communicat[ed] false information about these fees to borrower in order “to pursue their fraudulent scheme.” Id. at ¶ 155. Ocwen argues that these allegations are insufficient for RIO purposes because Plaintiff has not identified the date or contents of a single misstatement in support of his RICO claims. While Ocwen correctly points out that predicate acts under RICO must be alleged with specificity under Rule 9(b) (Schreiber Dist. Co., v. Serv-Well Furniture Co., Inc., 806 F.2d 1393, 1400-01 (9th Cir. 1986)), this Court concludes, as it did with respect to Plaintiff’s fraud allegations as discussed above, that the requisite specificity has been met for pleadings purposes. Unlike cases where no individualized injury is identified, Plaintiff here contends he received monthly statements demanding that he pay allegedly marked-up fees for BPO assessed on September 4, 2013 and February 27, 2014, and a marked-up “Title Search” fee assessed to his account on June 9, 2014. Id. at ¶ 101, 103. These allegations square with assertions deemed sufficient by the Court in Bias, where the plaintiff alleged that, “[t]hrough the mail and wire, [Wells Fargo] provided mortgage invoices, payoff demands, or proofs of claims to borrowers, demanding that borrowers pay fraudulently concealed marked-up fees for default-related services.” Bias, 942 F. Supp. 2d at 938-39.

3. Conspiracy

As indicated above, Plaintiff’s Third Cause of Action alleges, under 18 U.S.C. § 1962(d), a conspiracy to violate the general RICO violations already set forth in the Second Cause of Action. Ocwen’s claim that the conspiracy claim fails depends primarily on the success of its assertion that Plaintiff has failed to allege a substantive RICO violation under § 1962(c). The Court’s rejection of Ocwen’s argument in that regard disposes of the very foundation of Ocwen’s same argument with respect to conspiracy. Ocwen’s secondary argument that Plaintiff has failed to sufficiently allege the nature and scope of the unlawful scheme for purposes of § 1962(d) is equally unavailing. Plaintiff’s allegations, as discussed at length above, are more than sufficient to withstand pleadings scrutiny at this juncture of the case.

F. UCL Claims

Under Calfiornia’s UCL, any person or entity that has engaged “in unfair competition may be enjoined in any court of competent jurisdiction.” Cal. Bus. & Prof. Code §§ 17201, 17203. “Unfair competition” includes “any unlawful, unfair or fraudulent business act or practice.” Id. at § 17200.

Plaintiff here premises her UCL violations under the “fraudulent” and “unfair” components of the statute. Compl., ¶ 126. To state a claim under the “fraudulent” prong of the UCL, “it is necessary only to show that members of the public are likely to be deceived” by the business practice. In re Tobacco II Cases, 46 Cal. 4th 298, 312 (2009). While no definitive test has been established to determine whether a business practice is “unfair” in consumer cases, three tests for unfairness have been developed in the consumer context. First, a business practice is unfair where the practice implicates a public policy that is “tethered to specific constitutional, statutory or regulatory provisions.” Harmon v. Hilton Group, 2011 WL 5914004 at *8 (N.D. Cal. Nov. 28, 2011). The second test “determine[s] whether the alleged business practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers and requires the court to weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.” Id. Finally, under the third test, “unfair” conduct requires that “(1) the consumer injury must be substantial; (2) the injury must not be outweighed by any countervailing benefits to consumers or competition; and (3) it must be an injury that consumers themselves could not reasonably have avoided.” Davis v. Ford Motor Credit Co., 179 Cal. App. 4th 581, 597-98 (2009).

Under the “fraudulent” prong of the statute, Plaintiff alleges that Ocwen “affirmatively misled delinquent borrowers into paying marked-up fees which Defendants are not authorized to collect.” Pl.’s Opp’n, 16:16-18. Plaintiff goes on to contend that in furtherance of this fraudulent scheme, Defendants send delinquent borrowers monthly statements which

disguise[] the fact that the amounts [Ocwen] represent[s] as being owed have been marked-up beyond the actual cost of the services, violating the disclosures in the mortgage contract.

Compl., ¶ 128.

According to Plaintiff, with the “true character, quality, and nature of their assessment of marked-up default-related service fees” concealed from unsuspecting borrowers, Defendants use the full force of their position as a major financial institution to sell the fraud and collect the prohibited fees. Id. at ¶¶ 127, 133-35. Based on these allegations, Plaintiff asserts that there can be no real dispute that Ocwen’s conduct could mislead and/or deceive the public so as to state a claim under the UCL’s “fraudulent” prong.

Significantly, under very similar circumstances, the Bias court found that plaintiffs’ claim there sufficed to satisfy this requirement for pleadings purposes. Bias, 942 F. Supp. 2d at 935. In Bias, like the present case, plaintiffs provided specific dates on which they were charged marked-up fees as well as Wells Fargo’s failure to inform them that the fees were in face inflated. Taken together, Bias found those allegations to “adequately allege a fraudulent business practice likely to deceive the public” for UCL purposes, despite the fact that as a claim grounded in fraud, the particularity requirement of Rule 9(b) applies. Id. at 935, 932. The Court views this reasoning as persuasive and, like Bias, denies the request for dismissal as to Plaintiff’s UCL claim based on the fraudulent prong.

Ocwen fares no better in its challenge to the “unfairness” component of Plaintiff’s UCL claim. Citing Walker v. Countrywide Home Loans, Inc., 98 Cal. App. 4th 1158 (2002), Ocwen contends that Plaintiff’s claim cannot be “unfair” for UCL purposes because the Deed of Trust authorizes default-related services to protect the holder’s security interest in the subject property. Walker’s recognition that a loan servicer can charge a delinquent borrower a property inspection fee for this purpose, however, does not mean that Defendants can charge marked-up default-related service fees, an issue not addressed in Walker. Under either the second or third test for determining the viability of a claim of “unfairness” under UCL, Plaintiff’s claim suffices.

G. Unjust Enrichment

Under California law, the elements of unjust enrichment are: (1) receipt of a benefit; and (2) the unjust retention of the benefit at the expense of another. Peterson v. Cellco Partnership, 164 Cal. App. 4th 1583, 1593 (2008). Restitution resulting from unjust enrichment can “be awarded in lieu of breach of contract damages when the parties had an express contract” but the contract “was procured by fraud or is unenforceable or ineffective for some reason.” McBride v. Boughton, 123 Cal. App. 4th 379, 387 (2004). Nonetheless, “where express binding agreements exist and define the parties’ rights,” an action for unjust enrichment does not lie. Cal. Med. Ass’n, Inc. v. Aetna U.S. Healthcare of Cal., 94 Cal. App. 4th 151, 172 (2001).

Plaintiff’s unjust enrichment claim is premised on the same facts underlying Ocwen’s alleged fraudulent concealment of its marked-up default related fees. While default service fees themselves may be authorized by the Deed of Trust, the propriety of a mark-up is not governed by the mortgage contract, despite Ocwen’s argument to the contrary. Given the fact that Ocwen’s challenge to the unjust enrichment claim is based solely on the contention that the fees at issue are authorized by contract, the Court’s conclusion that they are not authorized by contract disposes of Ocwen’s challenge, and mandates that its motion to dismiss as to the Fifth Cause of Action for unjust enrichment be denied.

CONCLUSION

For all the reasons set forth above, Ocwen’s Motion to Dismiss (ECF No. 6) is DENIED.

IT IS SO ORDERED.

[1] All further references to “Rule” or “Rules” are to the Federal Rules of Civil Procedure unless otherwise noted.

[2] Having determined that oral argument would not be of material assistance, the Court ordered this matter submitted on the briefs in accordance with E.D. Local Rule 230(g).

[3] This factual background is drawn directly from the allegations contained in Plaintiff’s Class Action Complaint (ECF No. 1).

[4] According to the applicable Deed of Trust, the “Application of Payments or Proceeds establishes a hierarchy in which funds from customer payments are to be applied. Those funds are to be allocated in the following order: 1) interest due under the promissory note; 2) principal due under the promissory note; 3) amounts due for any “escrow item (such as property taxes or homeowners’ insurance premiums); 4) late charges; and 5) fees for default related services and other amounts. Compl., ¶¶ 76, 77; see also Deed of Trust, Ex. 1 to Ocwen’s Request for Judicial Notice, ¶ 2. Ocwen’s request that the Court judicially notice a redacted copy of Plaintiff’s Deed of Trust, pursuant to Federal Rule of Evidence 201, is unopposed and is hereby GRANTED.

[5] Plaintiff’s mortgage contract consists of two documents, the Promissory Note and the Deed of Trust, which authorizes the loan servicer to take certain steps to protect the note holder’s interest in the property.

IBTimes-

Federal prosecution of white-collar crime has hit a 20-year low, according to a new report on Department of Justice data. The analysis of thousands of records by Syracuse University shows a more than 36 percent decline in such prosecutions since the middle of the Clinton administration, when the decline first began.

In the aftermath of the 2008 financial crisis, prosecutions ticked up slightly, but then dropped. Landing amid calls from Democratic presidential candidates for more Wall Street prosecutions, the report notes that the projected number of prosecutions this year is 12 percent less than last year and 29 percent less than five years ago.

“The decline in federal white-collar crime prosecutions does not necessarily indicate there has been a decline in white-collar crime,” Syracuse researchers note. “Rather, it may reflect shifting enforcement policies by each of the administrations and the various agencies.”

[IBTIMES]

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